Saturday, May 4, 2013

Lowry v. United States case brief

Lowry v. United States case brief
384 F. Supp. 257, 1974 U.S. Dist. 74-2 U.S. Tax Cas. (CCH) P9821; 34 A.F.T.R.2d (RIA) 6206

CASE SYNOPSIS: Plaintiff taxpayers brought an action to recover federal income taxes and interest, which they alleged were erroneously or illegally assessed and which was collected by defendant federal government when the federal government disallowed a deduction for maintenance of income producing property.

FACTS: The taxpayers' former summer home was placed on the market and the house was never again used as residential property. The taxpayers made no attempt to rent the house. On their tax returns, the taxpayers deducted expenditures made for the care and maintenance of the former summer home. The deductions were based upon the premise that the summer home was no longer personal property, but was property held for the production of income pursuant to I.R.C. § 212. The Internal Revenue Service disagreed and disallowed the deduction pursuant to I.R.C. § 262. The taxpayers filed suit against the federal government to recover taxes and interest, which they asserted were erroneously or illegally assessed and collected when their deduction was disallowed.

The court determined that the test to determine whether property constituted property held for income was the intent or purpose of the taxpayers in light of all the facts and circumstances.

The court found that it was irrelevant that the taxpayers had never attempted to rent the home and that the taxpayers had a reasonable expectation of profit. The court focused on the fact that the home was immediately listed on the market.

CONCLUSION: The court found that the taxpayers had a reasonable expectation of profit and therefore the property was held as income producing property. Therefore, the court determined that the taxpayers were entitled to deduct the property's maintenance expenses.

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