Snyder v. U.S.
| Decision Date | 30 March 1982 |
| Docket Number | No. 80-1564,80-1564 |
| Citation | 674 F.2d 1359 |
| Parties | 82-1 USTC P 9285 Paul SNYDER and Helen J. Snyder, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Paul Snyder, Jr., Boulder, Colo. (Paul Snyder, pro se and Snuder, Neuman & Enwall, Boulder, Colo., on the brief), for plaintiffs-appellants.
Jonathan Cohen, Atty., Tax Div., Dept. of Justice, Washington, D. C. (M. Carr Ferguson, Asst. Atty. Gen., Michael L. Paup and Donald B. Susswein, Attys., Tax Div., Washington, D. C., with him on the brief), for defendant-appellee.
Before McWILLIAMS, DOYLE and SEYMOUR, Circuit Judges.
Taxpayers Paul and Helen Snyder (taxpayer) 1 appeal from the judgment of a federal district court in Colorado holding that taxpayer's 1972-73 expenses relating to producing a photography book were not deductible as ordinary expenses in the years incurred under sections 162(a) 2 or 212 3 of the Internal Revenue Code. 26 U.S.C. §§ 162(a), 212 (1976). Taxpayer argues that such expenses should be currently deductible in the years in question. Because the district court findings of fact and conclusions of law are not sufficient to allow us to properly review the merits of this appeal, we remand the case to the district court.
Taxpayer, a practicing attorney, testified that he began work on a book of photographs of the Colorado high country in 1972. He expected to publish and sell the finished product. His photographic activities changed markedly as he pursued his book project. Prior to 1972, such activities consisted primarily of taking family snapshots with modest equipment that was inappropriate for a commercial enterprise. In order to produce commercial quality photographs for the book, however, taxpayer acquired sophisticated large format photographic equipment. He began to devote approximately 30 hours a week to taking pictures. The number of rolls of film taxpayer shot increased from about five or six rolls in 1971 to about 200 rolls in 1972. He also began to keep detailed records of technical data regarding his photographs.
After a year's work, taxpayer had accumulated approximately 3,000 slides and began to send letters to publishers soliciting their interest in his book. He received replies from six or eight publishers who expressed interest, and he traveled to New York to discuss the book with some of them. He testified that the only purpose for his trip to New York was to promote publication of his book. He also traveled to San Francisco, at the expense of Scribners & Sons, to discuss the book with an editor for the Sierra Club. Taxpayer was encouraged by the publishers he met, but none of them offered to buy or publish his book.
Taxpayer's joint tax returns show he reported adjusted gross income of $55,105.65 in 1972 and $37,012.45 in 1973. Almost all of this income was derived from the practice of law. Included among various current deductions claimed by taxpayer were depreciation and business expenses attributed to his "nature photography" activity, which amounted to $4,370.85 in 1972 and $8,401.11 in 1973. Taxpayer testified that the deductions constituted expenses necessary to his endeavor to produce his book. Nevertheless, the IRS concluded that taxpayers' deductions attributable to the photography book were not allowable under either section 162 or section 212. Accordingly, the IRS found that additional taxes and other amounts of $6,913.41 were due for the years 1972 and 1973. Taxpayer paid that amount, filed a claim for refund, and timely sued to recover the amount paid.
At trial, the district court concluded that taxpayer was not engaged in the "trade or business" of producing a book. The court held that taxpayer's claimed expenses were not appropriate deductions under section 162 or 212 and "at best" the expenses might be capitalized under section 212.
The trial judge delivered findings of fact and conclusions of law orally from the bench. He stated that they were intended to be "rough" findings and conclusions only and he requested that they be reduced to writing by counsel for the IRS. The judge noted that he hoped to make sufficient comments to permit formalized findings and conclusions to be drafted. Unfortunately, no such formalized findings were ever approved by the court and we are left with only the "oral, rough, findings." Rec., vol. III, at 2.
The trial court stated in its oral findings that the taxpayer had "sincere hopes" of selling his photography book to many people, id. at 3, and "does hope to make a profit." Id. at 4. Notwithstanding these factual findings of taxpayer's profit motive, the trial court reached the conclusion that the taxpayer was not engaged in the "trade or business" of writing a book, but was trying to produce a literary capital asset.
No citation to any source was provided for these conclusions, and underlying facts other than profit motive were not elaborated upon. This poses a problem for us because the general test for whether a person is engaged in a "trade or business" under section 162 has variously been stated to be "whether the business was undertaken 'in good faith for the purpose of making a profit,' " Malmstedt v. Commissioner, 578 F.2d 520, 527 (4th Cir. 1978) (quoting Lamont v. Commissioner, 339 F.2d 377, 380 (2d Cir. 1964)), or whether the taxpayer's primary purpose and intention in engaging in the activity is to make a profit. See Golanty v. Commissioner, 72 T.C. 421, 425 (1979); Allen v. Commissioner, 72 T.C. 28, 33 (1979). Consequently, the profit motive finding in this case supports a conclusion that taxpayer was in the trade or business of producing a book rather than the district court's conclusion that the taxpayer was not in the trade or business.
Fed.R.Civ.P. 52(a) states that "(i)n all actions tried upon the facts without a jury ... the court shall find the facts specially and state separately its conclusions of law thereon ...." One important purpose of this rule is to afford the appellate court a clear understanding of the ground or basis of the decision of the trial court. See Ramey Construction Co. v. Apache Tribe, 616 F.2d 464, 466-67 (10th Cir. 1980); United States v. Horsfall, 270 F.2d 107, 109 (10th Cir. 1959); 9 C. Wright and A. Miller, Federal Practice and Procedure § 2571 at 679 (1971). The Supreme Court noted in Kelley v. Everglades Drainage District, 319 U.S. 415, 422, 63 S.Ct. 1141, 1145, 87 L.Ed. 1485 (1943):
(emphasis added). See also Schneiderman v. United States, 320 U.S. 118, 129-31, 63 S.Ct. 1333, 1338-39, 87 L.Ed. 1796 (1943). A trial court must include as many of the subsidiary facts as necessary to permit us to "determine the steps by which (it) reached its ultimate conclusion on each factual issue." 9 C. Wright, supra, § 2579 at 710; James Petroleum Corp. v. Commissioner, 331 F.2d 344, 345 (10th Cir. 1964); Woods Construction Co. v. Pool Construction Co., 314 F.2d 405, 407 (10th Cir. 1963).
The trial court's findings of fact in the present case are not sufficient to guide us in rendering a proper decision. We need further factual findings to determine whether the district court properly concluded that taxpayer was not in the "trade or business" of producing a book.
The IRS argued below and in this court that an author cannot be in the trade or business of writing if he has not yet produced a book, and it appears from the trial judge's comments during trial that he may have accepted this assertion. If so, the trial judge made his decision based on an erroneous legal conclusion. We find no support for this contention and believe, as a policy matter, that such a position would have an unwarranted and undesirable chilling effect on budding authors who are serious in pursuing a writing career. Section 162 does not require such a result.
The IRS also emphasizes that taxpayer in this case spends 40 hours per week as a lawyer. But he also spent 30 hours a week working on his book in the tax years in question, and we have recognized "the indisputable legal premise that the (taxpayer) ... might be engaged in carrying on a number of trades or businesses." Wiles v. United States, 312 F.2d 574, 576 (10th Cir. 1962). Accord Mercer v. Commissioner, 376 F.2d 708, 710 (9th Cir. 1967). Furthermore, it is well settled that the term "trade or business" includes the arts. See 4A J. Mertens, Law of Federal Income Taxation, P 25.08 at 32 & n. 33 (1979).
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