Patrick Simonelli v. Cir ( 2020 )


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  •                            NOT FOR PUBLICATION                           FILED
    UNITED STATES COURT OF APPEALS                        JAN 23 2020
    MOLLY C. DWYER, CLERK
    U.S. COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    PATRICK JOSEPH SIMONELLI;                       No.    18-70664
    JACQUELINE CARLIN SIMONELLI,
    Tax Ct. No. 17301-14
    Petitioners-Appellants,
    v.                                             MEMORANDUM*
    COMMISSIONER OF INTERNAL
    REVENUE,
    Respondent-Appellee.
    Appeal from a Decision of the
    United States Tax Court
    Submitted January 21, 2020**
    San Francisco, California
    Before: W. FLETCHER and R. NELSON, Circuit Judges, and MOLLOY,***
    District Judge.
    Patrick and Jacqueline Simonelli appeal the Tax Court’s determination that
    *
    This disposition is not appropriate for publication and is not precedent
    except as provided by Ninth Circuit Rule 36-3.
    **
    The panel unanimously concludes this case is suitable for decision
    without oral argument. See Fed. R. App. P. 34(a)(2).
    ***
    The Honorable Donald W. Molloy, United States District Judge for
    the District of Montana, sitting by designation.
    there were deficiencies in their income tax for taxable years 2011 and 2012
    because they were not entitled to deduct expenses related to a claimed law practice
    and to a vacation home they occasionally rented out. We have jurisdiction under
    
    26 U.S.C. § 7482
    (a) and affirm.
    We review for “clear error the Tax Court’s factual determination that a
    taxpayer has failed to produce sufficient evidence to substantiate a deduction.”
    Sparkman v. Commissioner, 
    509 F.3d 1149
    , 1159 (9th Cir. 2007). We also review
    “findings of negligence by the Tax Court under the clear error standard.” Hansen
    v. Commissioner, 
    471 F.3d 1021
    , 1028 (9th Cir. 2006) (internal quotation marks
    omitted). The Tax Court did not clearly err in determining that Patrick was not
    engaged in a law practice in 2011 and 2012, that Jacqueline was not a real-estate
    professional in 2011 and 2012, and that the Simonellis are liable for accuracy-
    related penalties.
    1. The Tax Court correctly determined that the Simonellis were not entitled
    to a deduction for expenses Patrick claimed were incurred in law practice with his
    son in 2011 and 2012. Patrick was not licensed in California or Singapore, where
    he was supposedly practicing law, and no evidence suggests Patrick held himself
    out as an attorney or sought clients. Instead, the evidence shows that the legal
    work Patrick performed—including on two personal lawsuits for his son and
    probate work for his brother’s estate—generated no fees, and almost none of the
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    work on those matters occurred in 2011 or 2012. The Simonellis therefore failed
    to prove they were involved in the practice of law with continuity and regularity
    with a primary purpose of making a profit in 2011 and 2012. See Commissioner v.
    Groetzinger, 
    480 U.S. 23
    , 35 (1987). Nor may the Simonellis deduct these
    expenses under 
    26 U.S.C. § 183
     because they reported no gross income from
    Patrick’s law-related activities during those taxable years.
    2. The Tax Court also correctly determined that the Simonellis were not
    entitled to a deduction for rental real-estate losses in 2011 and 2012. The
    resolution of this issue depends on whether Jacqueline qualified as a real-estate
    professional during those years. The Tax Court properly found that she did not.
    Jacqueline did not spend more than 750 hours in real-property trades or business in
    either of those years. 
    26 U.S.C. § 469
    (c)(7)(B)(ii). Instead, she spent many hours
    on personal activities that do not qualify as real-property trades or business.
    Moreover, we decline to consider whether Jacqueline qualified as a “Property
    Manager” because the Simonellis raised this issue for the first time on appeal.
    Bolker v. Commissioner, 
    760 F.2d 1039
    , 1042 (9th Cir. 1985).
    3. Finally, the Simonellis waived any challenge to the imposition of
    accuracy-related penalties by failing to raise that issue in their Opening Brief.
    Wagner v. Cty. of Maricopa, 
    747 F.3d 1048
    , 1059 (9th Cir. 2013). Even if the
    issue were not waived, the Tax Court correctly determined that the Simonellis are
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    liable for such penalties because they negligently failed “to keep adequate books
    and records or to substantiate items properly.” 
    26 C.F.R. § 1.6662-3
    (b)(1).
    AFFIRMED.
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