Dog and Horse case:Research authoritative sources on the Randy Miller Dog and Horse case and draft a file memo on whether his losses from raising dogs and horses can be deducted on his federal income tax return.I attached few documents to help out understand the requirement. The swimming pool case is an example.Dog and Horse Case
Case Facts
Randy Miller is very successful in the business of retailing soft drinks and makes good profit
from the business.
Randy also raises dogs and horses. He began raising a particular breed of dogs many years ago
in the belief that the breed was in danger of declining, and he has raised and sold the dogs in
each year since. The taxpayer recently began raising and racing thoroughbred horses.
The losses from the taxpayer’s dog and horse activities have increased in magnitude over the
years, and he has not made a profit on these operations during any of the last 15 years. The
taxpayer generally sells the dogs only to friends, does not advertise the dogs for sale, and
shows the dogs only infrequently. The taxpayer races his horses only at the “prestige” tracks at
which he combines his racing activities with social and recreational activities. The horse and dog
operations are conducted at a large residential property on which the taxpayer also lives, which
includes substantial living quarters and attractive recreational facilities for the taxpayer and his
family.
On his federal income tax return, Randy wants to deduct the losses he has made in dog and
horse raising from the profits he has made from retailing soft drinks.
Research Issue or Question
Relevant Authoritative Sources
Discussion
Conclusion
Dog and Horse Case
Case Facts
Randy Miller is very successful in the business of retailing soft drinks and makes good profit
from the business.
Randy also raises dogs and horses. He began raising a particular breed of dogs many years ago
in the belief that the breed was in danger of declining, and he has raised and sold the dogs in
each year since. The taxpayer recently began raising and racing thoroughbred horses.
The losses from the taxpayer’s dog and horse activities have increased in magnitude over the
years, and he has not made a profit on these operations during any of the last 15 years. The
taxpayer generally sells the dogs only to friends, does not advertise the dogs for sale, and
shows the dogs only infrequently. The taxpayer races his horses only at the “prestige” tracks at
which he combines his racing activities with social and recreational activities. The horse and dog
operations are conducted at a large residential property on which the taxpayer also lives, which
includes substantial living quarters and attractive recreational facilities for the taxpayer and his
family.
On his federal income tax return, Randy wants to deduct the losses he has made in dog and
horse raising from the profits he has made from retailing soft drinks.
Research Issue or Question
What losses are allowed as a deduction for individuals? This is not casualty loss situation.
Conjectures
(a) Is the dog and horse activity a business or a hobby?
(b) What are the conditions for an activity to qualify as a business? Is it required that profit
must be made?
(c) Is it true that losses in Business X cannot be used to offset losses in Business B?
(d) If the two businesses are run through two different corporations, then can losses in one be
offset against profits in another?
Identify the code section. Go through it. Note down relevant paragraphs.
Go through the associated treasury regulation
Use Annotation in USTR (US Tax Reporter) to identify any relevant cases.
Relevant Authoritative Sources
Discussion
Conclusion
Swimming Pool Case
Case Facts
Bill and Mona Holder are a married couple. They have a daughter Erica who is 5 years old.
In 2018, the Holders learnt that Erica has a medical condition that makes her muscles weak.
Erica’s doctor suggested physical therapy exercises as well as swimming regularly to improve her
muscle strength.
The Holders live in a rural area far from any public swimming pool. So they are considering installing
a swimming pool in the backyard of their house.
The Holders want to know if the cost of installing a swimming pool can be deducted on their federal
income tax return as a medical expense.
Research Issue or Question
Relevant Authoritative Sources
Discussion
Conclusion
Swimming Pool Case
Case Facts
Bill and Mona Holder are a married couple. They have a daughter Erica who is 5 years old.
In 2018, the Holders learnt that Erica has a medical condition that makes her muscles weak.
Erica’s doctor suggested physical therapy exercises as well as swimming regularly to improve her
muscle strength.
The Holders live in a rural area far from any public swimming pool. So they are considering installing
a swimming pool in the backyard of their house.
The Holders want to know if the cost of installing a swimming pool can be deducted on their federal
income tax return as a medical expense.
Research Issue or Question
What costs associated with home improvement made upon a physician’s recommendation to
mitigate a medical condition of a dependent qualify for deduction as medical expense?
Relevant Authoritative Sources
IRC §152(a)(1); IRC §152(c); §213(a); §213(d)(1)(A)
Reg. §1.213-1(e)(1)(iii);
Richard A. Polacsek TC Memo 1981-569
Discussion
IRC §213(a) allows uncompensated medical expenses incurred by a taxpayer for the medical
care of the taxpayer or taxpayer’s spouse or taxpayer’s dependents as a deduction. It limits the
amount of deduction to the amount of uncompensated medical expenses less 10% of AGI.
Per IRC §152(a)(1), a taxpayer’s qualifying child is a dependent of the taxpayer. Per IRC §152(c),
a qualifying child includes a child of the taxpayer who is less than 19 years old, is living with the
taxpayer and has not provided more than one-half of his/her own support.
Per IRC §213(d)(1)(A) medical care includes mitigation or treatment of a disease or treatment to
affect the structure or function of the body.
The code does not provide clarity on whether home improvement costs incurred upon a
physician’s recommendation qualify as a medical expense.
Reg. §1.213-1(e)(1)(iii) allows capital expenditure as a medical expense deduction, provided the
primary purpose of the capital expenditure is medical care, to the extent the expenditure
exceeds the increase in value of the property arising from the expenditure. It provides as an
illustrative example of such deductible medical expense, expenditure incurred to install an
elevator in a home, upon a physician’s advice. In addition to the cost of installation, it also
allows as deductible medical expense, yearly operational and maintenance costs incurred on
the elevator, as long as the medical reason for the elevator’s installation does not cease.
In Richard A. Polacsek TC Memo 1981-569, tax payer installed a swimming pool at taxpayer’s
home for medical purposes. The swimming enhanced the value of the home. The Tax Court
ruled that the cost of installation less the enhancement in the value of the home qualifies as a
deductible medical expense.
Conclusion
The following expenditures qualify as deductible medical expenses:
(a) Expenditure incurred to install the swimming pool less increase in value of property
from the installation. Proof of expenditure and an appraisal report would be necessary.
(b) Yearly maintenance expenditure incurred on the pool until the physician’s
recommendation for the taxpayer’s daughter continues to hold.
Tax Research File Memo Template
Case Facts
Research Issue or Question
Relevant Authoritative Sources Identified
Statute e.g. IRC § 117(d)(2)(B)
Revenue Regulation e.g. Regulation § 1.117-4
Revenue Ruling e.g. Rev. Rul. 2016-15, 2016-26 I.R.B. 1060
Private Letter Ruling e.g. PLR 200615005
Judicial Decision e.g. Indopco, Inc. v. Commissioner, 503 U.S. 79 (1992)
Discussion
Conclusion

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