Passive Income, Rent of Yachts, and Reliance on Competent Tax Counsel

Rogerson v. Commissioner, TC Memo. 2022-49| May 12, 2022 | Toro, J. | Dkt. No. 5848-20

Opinion

Summary:  This deficiency case regards an evaluation of the passive activity loss rules of 26 U.S.C. § 469. Section 469 limits a taxpayer’s use of losses generated by passive activities to offset unrelated income generated by nonpassive activities. Michael Rogerson, the taxpayer, owned patents, and he led, for over 40 years as CEO, a number of companies in the aerospace industry. For the tax years in issue, he also owned two yachts that he intended for chartering and that sustained substantial losses in the tax years in issue. The federal income tax issues regarded section 469 and the consequences of Rogerson’s participation in these endeavors.

In 2014 and 2015, Rogerson reorganized the Rogerson companies into three corporations, referred to here as RAC, RAEG, and RC, each of which engaged in various lines of interrelated business and RC employed the executive team and provided administrative support to RAC and RAEG.  Before and after the 2014 reorganization, the operations of RAEG’s business units remained generally the same. As he was before the reorganization, Rogerson continued to oversee and was very active in all aspects of the operations of the business as a whole, serving as CEO of RAC, RAEG, and RC from the time of their incorporation through the years at issue.

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