Alvi v. Commissioner of Internal Revenue, 062110 FEDTAX, 15655-08S

Docket Nº:15655-08S
Opinion Judge:DEAN, Special Trial Judge.
Attorney:Muhammad Ahmed Alvi, pro se. Thomas D. Yang, for respondent.
Case Date:June 21, 2010
Court:United States Tax Court

T.C. Summary Opinion 2010-79




No. 15655-08S

United States Tax Court

June 21, 2010


Muhammad Ahmed Alvi, pro se.

Thomas D. Yang, for respondent.

DEAN, Special Trial Judge.

This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

The issues for decision are whether for 2005: (1) Petitioner's activities constituted separate activities; (2) petitioner's activities were operating as going concerns, and if so, whether expenses attributable to the activities are deductible on Schedule C, Profit or Loss From Business; (3) petitioner is liable for an addition to tax under section 6651(a)(1); and (4) petitioner is liable for an addition to tax under section 6654(a).


Some of the facts have been stipulated and are so found. The stipulations of fact and the attached exhibits are incorporated herein by this reference. When petitioner filed his petition, he resided in Illinois.

On a 2005 Federal income tax return provided to the Court on the date of trial, petitioner reported $4, 387 of gross income and $55, 067 of total expenses on Schedule C. For 2005 he also reported gross receipts of $17, 610 for his work as a physician on Schedule C-EZ, Net Profit From Business.

I. Petitioner's "Business" Activities

During 2005 petitioner managed several activities under a single "business" name, SkillsSoft.1 He hired several employees to develop the activities, and the employees performed work for all of the activities using the same tools, software programs, and resources.

Petitioner's activities encompassed a variety of interests. His activities consisted of: (1) Edokan, an online retail sales Web site; (2), a weight loss Web site, designed to assist consumers with determining their body mass index and calculating their body's optimal caloric intake; (3) Desi, a Pakistani language video and music Web site; (4) an individual weight loss software program; (5) a software program for Urdu to English and English to Urdu translation and an Internet-based dictionary; and (6) software for a physician's desk reference guide.

Edokan was the only activity to generate income in 2005.

Petitioner did not develop or reduce to writing a business plan or a written advertising or marketing plan for his activities. Although he planned to generate revenue through advertising sales, he did not maintain or develop a potential customer list for his activities.

Petitioner incurred considerable expenses developing the activities, including oil and fuel expenses, legal and professional fees, Internet and cable expenses, phone bills, utility expenses, equipment expenses, and other miscellaneous expenses.

Petitioner believed that because expenses for the activities exceeded his income, he was not required to file a Federal income tax return for 2005. He conceded that he earned income of $17, 610 as reported on Form 1099-MISC, Miscellaneous Income, but thought that the losses from his activities offset his income for 2005.

II. Notice of Deficiency

Respondent prepared for petitioner a substitute for return for 20052 and on the basis of that return issued to petitioner a notice of deficiency. In the notice of deficiency respondent determined a deficiency in petitioner's Federal income tax of $3, 349 and additions to tax under sections 6651(a)(1) and (2) and 6654(a) of $753.53, $385.14, and $134.34, respectively.3


Generally, the Commissioner's determinations are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous.4 Rule 142(a); see INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933).

As a preliminary matter, respondent alleged that petitioner's activities did not constitute a single activity. Accordingly, the Court must first address the threshold issue of whether petitioner's activities constituted a single activity.

I. Petitioner's Activities

Multiple undertakings of a taxpayer may be treated as one activity if the undertakings are sufficiently connected. Sec. 1.183-1(d)(1), Income Tax Regs. The most important factors in making this determination are the degree of organizational and economic interrelationship of the undertakings, the business purpose served by carrying on the undertakings separately or together, and the similarity of the undertakings. Id. The Commissioner generally accepts the taxpayer's characterization of two or more undertakings as one activity unless the characterization is artificial or unreasonable. Id.

Factors considered in determining whether the taxpayer's characterization is reasonable include: (1) Whether the undertakings are conducted at the same place; (2) whether the undertakings were part of the taxpayer's efforts to find sources of revenue from his or her land; (3) whether the undertakings were formed as separate activities; (4) whether one undertaking benefited from the other; (5) whether the taxpayer used one undertaking to advertise the other; (6) the degree to which the undertakings shared management; (7) whether the taxpayer used the same accountant for the undertakings; and (8) the degree to which the undertakings shared books and records. Topping v. Commissioner, T.C. Memo. 2007-92.

Petitioner contends that he operated his activities as a single activity. His employees, operating from a central location in Pakistan, developed the activities interactively, using the same tools, programs, and resources. Petitioner explained that he did not calculate the expenses and revenue of his activities separately, but rather as if operating as one activity. In addition, he maintained that the activities would depend on one another to promote their business because he planned to use each activity as an advertising base for the other activities.


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