BAILEY v. COMMISSIONER OF INTERNAL REVENUE
T.C. Memo. 2012-96
United States Tax Court.
Filed April 2, 2012.
While it may be true that Mr. Bailey did not enjoy piloting the yacht, the record belies the claim that he derived no personal pleasure from it. First, the Spellbound was built to Mr. Bailey's specifications, and he testified that it was beautiful. Second, the record does not show that Mr. Bailey always took on the job of piloting the Spellbound. PBR hired a captain and crew to sail and maintain the Spellbound, and Mr. Bailey could have used their services to pilot the yacht any number of times. Even assuming arguendo that Mr. Bailey piloted the Spellbound on every personal trip—and that he disliked the task—we find that he derived pleasure from sharing the yacht with his family and friends and that he anticipated doing so when he purchased the yacht in 1989.
This factor—elements of personal pleasure—is in the Commissioner's favor.
We do not conclude that Mr. Bailey's contention that he intended to refurbish and sell yachts is a complete fabrication. He may well have contemplated the idea when deciding to buy the yacht, and he may have entertained the possibility as another justification for going ahead and making the purchase. But there is no indication that operating an activity of refurbishing and selling yachts for profit was the real or principal reason he bought the yacht. Consequently, we find that the yacht refurbishing activity before the years at issue was not entered into for profit; therefore, the winding down of that activity in the years at issue, involving the rental of the yacht, was not the continuation of a for-profit activity.
B. Equitable estoppel
1. Alleged agreement
Mr. Bailey contends that the Commissioner is estopped by a settlement agreement from contesting his profit motive for the yacht rental activity. Mr. Bailey alleges that he and the IRS entered into a settlement agreement in 1996 which stipulated that Mr. Bailey's yacht refurbishing activity had been engaged in for profit for the 1990 through 1992 tax years. Revenue Agent Tabor acknowledges that he allowed Mr. Bailey favorable treatment on this issue for 1990 through 1992; but the only evidence of any written agreement is Mr. Bailey's testimony that "I think there's a letter out there, somewhere" that memorialized the alleged settlement agreement. Mr. Bailey did not submit into evidence a copy of the alleged settlement agreement or any other evidence to suggest that a settlement was reached, and we find that there was no such settlement.