Hobby Loss Rules - Urology and Airplanes Don't Mix

This is probably one of the most interesting Tax Court cases of the year so far. The taxpayer is a urologist. While he was a licensed doctor, he was also a licensed pilot. Mixing his passions, he formed a company called Air Urology, LLC. This was a rental airplane activity (one that was never advertised to the general public). The activity had several large losses each year in question.


Ultimately, the leasing of the airplane was determined to be not engaged in for profit. If you want a quick break down of the factors for such determination, the court lays them out nicely:

Those factors include: "(1) the manner in which the taxpayer carries on the activity, (2) the expertise of the taxpayer or his advisors, (3) the time and effort expended by the taxpayer in carrying on the activity, (4) the expectation that assets used in the activity may appreciate in value, (5) the success of the taxpayer in carrying on other similar or dissimilar activities, (6) the taxpayer's history of income or losses with respect to the activity, (7) the amount of occasional profits, if any, which are earned, (8) the financial status of the taxpayer, and (9) whether elements of personal pleasure or recreation are involved. Sec. 1.183-2(b), Income Tax Regs. No one factor is determinative."

Where the taxpayer gets really creative is in 2008. In 2008, he decided to group his urology practice and airplane rental together for the purposes of IRC 183 (hobby loss rules). Here, the court looks at three things: (1) are they economically intertwined, (2) the business purposes served by carrying on the undertakings separately or together, and (3) the similarity of the undertakings. The court rules that the urology practice and airplane rental were not connected and could not be grouped.

Two of the best lines from the judge was: the urology practice "did not benefit from Dr. Steinberger's use of the airplane because he could have just as easily driven..." and "When his travel time to the airpark and the time to ready the airplane for flight are added to the stipulated flight times, Dr. Steinberger saved no time by flying to Wellington - in fact it took longer than driving.."

Definitely an interesting case for those who are interested in Hobby Losses.


Relevant Citations:
Steinberger v. Commissioner TC Memo 2016-104