Doherty v. Commissioner of Internal Revenue

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 09-2407
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Kevin T. Doherty, *
*
Appellant, *
* Appeal from the United States
v. * Tax Court.
*
Commissioner of Internal Revenue, * [UNPUBLISHED]
*
Appellee. *
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Submitted: April 6, 2010
Filed: May 4, 2010
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Before WOLLMAN, COLLOTON, and GRUENDER, Circuit Judges.
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PER CURIAM.
In this pro se appeal, Kevin Doherty challenges the tax court’s1 decision
disallowing depreciation deductions under 26 U.S.C. § 167, business-related
deductions under 26 U.S.C. § 162, and disabled-access credit under 26 U.S.C. § 44.
The deductions and the credit arose from Doherty’s investment in payphones that he
inherited and that he later purchased himself from Alpha Telecom, Inc. (Alpha), and
from his investment in automated teller machines (ATMs) that he purchased from
National Equipment Providers, LLC (NEP). The payphones and ATMs were
purportedly equipped with modifications that rendered them compliant with the
1
The Honorable L. Paige Marvel, United States Tax Court Judge.
Americans With Disabilities Act (ADA). We review the tax court’s findings of fact
for clear error and its legal conclusions de novo. See Campbell v. Comm’r, 164 F.3d
1140, 1142 (8th Cir. 1999).
We agree with the tax court that Doherty was not eligible to take depreciation
deductions for either the payphones or the ATMs, because under his purchase and
service agreements with Alpha and with NEP’s service provider, both companies
retained so much control over the equipment that Doherty never acquired ownership
of it for purposes of the Tax Code. See Upham v. Comm’r, 923 F.2d 1328, 1334 (8th
Cir. 1991) (“[W]here the transferor continues to retain significant control over the
property transferred, the transfer of formal legal title will not operate to shift the
incidence of taxation attributable to ownership of the property.”) Specifically, Alpha
and NEP’s service provider chose the location where the equipment was to be
installed and entered into site agreements; performed installation, maintenance, and
repairs; collected revenues; and paid insurance and other fees. Further, the companies
agreed to buy back their equipment and retained a majority of the profits from the
payphone and ATM revenues. See id. (discussing factors to consider in determining
ownership); Arevalo v. Comm’r, 469 F.3d 436 (5th Cir. 2006) (applying Upham to
affirm disallowance of § 167 depreciation deduction taken by taxpayers who bought
payphones from Alpha); Crooks v. Comm’r, 453 F.3d 653 (6th Cir. 2006) (same); see
also Sita v. Comm’r, 313 Fed. Appx. 885 (7th Cir. 2009) (unpublished per curiam)
(same).
We also agree with the tax court that Doherty was not eligible for the disabled-
access tax credit, because the credit applies only to qualified expenditures made for
the purpose of complying with the ADA, and Doherty was not required to comply
with the ADA. See Crooks, 453 F.3d at 657 (taxpayer-investors did not have duty to
ensure phones were ADA-compliant because they were not owners, lessors, lessees,
or operators of places of public accommodation; payphone investment did not qualify
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for disabled-access credit); Arevalo, 469 F.3d at 440 (same); Sita, 313 Fed. Appx. at
886 (same).
Finally, we agree with the tax court that Doherty was not engaged in a trade or
business involving the payphones or the ATMs, and therefore was not entitled to
deductions under section 162 for expenses relating to a trade or business. See
Comm’r v. Groetzinger, 480 U.S. 23, 35 (1987) (to be engaged in a trade or business,
taxpayer must be involved in activity with continuity and regularity).
Accordingly, we affirm.
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