This post was originally published on Forbes Aug 18, 2015
So the first blogger to bring a hobby loss case to Tax Court is not a tax blogger. Joshua Pingel planned to be part of the online travel market by writing a blog about his international travels. Tax bloggers, almost universally, have a professional activity- i.e. tax work either planning, compliance or some combination- that pays pretty well, when you consider that it is clean work with no heavy lifting.
Travelling of course is not such a lucrative activity, rather the opposite, even if you keep expenses down by backpacking. So if you could turn your travelling experiences into something blog worthy, on a profitable blog, that would be awesome. Not perhaps awesome, but better than being poked in the eye with a sharp stick, would be to build a plausible case that your blogging could have conceivably been profitable which would allow you to deduct your expenses as a business loss. Sad to say Josh did not accomplish either. He got the bad news from the Tax Court, where he represented himself, earlier this month.
The $40,000 Blogging Journey
To me this is a hobby loss case like none other, because unlike horse breeding, car racing , playing the slots by using the principles of feng shui or being an Amway "Independent Business Owner", blogging is something I do. I was rather upset when I read that Josh accidentally deleted his blog in 2010, but thank God for "The Wayback Machine" which seems to have preserved the 2008 posts of road2theworld.com. 2008 was the big year of the blog and also the year under audit in which Josh had claimed a net business loss of $39,138. The title of the blog is The World in My Nutshell and here are some high points. (Somewhat bowdlerized to meet my Victorian standards)
From The Netherlands
Met up with an Aussie fella (David, who is a paramedic back in Sydney) this past Tuesday and proceeded to smoke up some K2. Now, I've smoked some pot before back in Denver with Matt S and Alfonso A but the stuff they had didn't even compare to K2. K2 knocked me straight on my ___ for about 4 hrs (I see why it is called K2 because I was super high....g-damn...).
So, Dave and I walk up to one of the windows and proceeded to ask the lady about her prices. She was very pleasant and gave up the scoop on the basics. $50 Euros for a .................. All the rooms were being used (I think there are about 100 rooms or so) and you had all the variety you could ever want. Sort of like walking into a North American grocery store.
Oh, almost forgot something. Went to a few museums, the Rijks Museum, the Van Gogh Museum and some diamond museum.. If you are an avid museum fan go see the Rijks Museum! Totally cool stuff in there from paintings that are as big as walls to miniature ships (by miniature I mean a 12 foot long 8 foot high replica of a 74 gun Dutch warship...amazing detail, to Delft ceramics and other treasures. It was way better than the Van Gogh museum. Thanks for the heads up Uncle Tim! Very glad I went there!
In Africa
The night ended with a booze cruise in which Janice, an Aussie gal, decided she was going to run topless off the boat once we docked and then she ran all the way to the pool, slipped and fell in and got a partial separation of her right shoulder. Not a good way to end the day for her.
Anyway, on that drive down we passed these 2 mountains, can't recall the names and the drivers mentioned some fact about them. Oliver (or Olie as he liked to be called) a German IT guy who works for Daimler, and I found it quite interesting that as we drove by the mountains that they looked like a pair of perfectly shaped breasts. We had a very good laugh about it and D-Claire didn't really care too much for that. She initially hadn't heard what she said and then all of a sudden she pops up with, gosh, those mtns look a little like baps (Aussie for breasts).
The hyena was actually badly hurt and had been at the waterhole while some elephants strolled in for a drink. It was amazing that the elephants didn't trample the hyena when they saw it. They usually are not very forgiving of predatory animals in their space. Maybe they had sense to know that this one was literally on it's last leg so maybe they were going to just let it die on it's own. Personally I wanted the elephants to trample it just to be able to see something that not very many, if any, people would ever get to see.
On The Trials Of Travel Blogging
I know it has been a while and I ask that you hang on for a couple more days. Between slow internet connections, a faulty Microsoft product and very little time to stop in places that did have internet I really didn't get the time to make posts as I had initially planned....what's that they say about the best made plans...blah, blah, blah.
Actually I have tried travel blogging myself in a limited way as I real timed the Civil War Sesquicentennial. It really is a lot harder than tax blogging. In either you have this trade-off between gathering stuff to write about and writing, but with tax blogging you can do both at your desk. My one attempt at live blogging - the Gettysburg Address Sesqucentennial - did not go well at all. I suspect that Josh's blog would have improved if he had stuck with it longer, but he had to slack off when he got a new job that required him to work 14 hours a day. This is pretty good evidence that he had not received the true call to be a blogger.
The Decision
The Tax Court did the standard nine factor drill to analyze Josh's activities. He pretty much lost all around.
----Manner in Which the Activity Is Conducted----
Before beginning his travels, petitioner formed the LLC to implement the activity. Petitioner obtained an employer identification number for the LLC, but he did not identify the LLC on the Schedule C attached to the return. Furthermore, as of the date of trial, he had not contributed or transferred any assets to the LLC, and the LLC's filings were not current with the State of Colorado.
Petiti oner did not maintain any books or records for the activity. He had no written business plan and no estimate as to when his Web site would be operational, when his books would be published, or when he would begin to earn income from the activity. Although petitioner documented and retained receipts for his travel-related expenses, merely maintaining receipts is not enough to indicate a profit motive.
Furthermore, petitioner did not investigate the activity before embarking on his trip. Petitioner incurred over $39,000 in expenses before doing any research into the activity's profitability. This is an indication that the activity was not engaged in for profit.
-----Expertise-----
Petitiononer sought out and obtained expert advice regarding the activity. Petitioner contacted noted experts in the activity; additionally, he contacted experts regarding the creation, development, and marketing of products embodied in courses he has taken. While these actions are to petitioner's credit, he did not perform them until after his trip when he determined the marketplace to be highly competitive and already developed and in years beyond the year in issue. Petitioner failed to perform basic due diligence before embarking on his proposed course of action.
-----Time And Effort ----
The record reflects that petitioner devoted his time and effort to the activity in 2008 through his traveling and blog posts. Additionally, petitioner left his job in 2008 to have more time to pursue the activity. Although petitioner has devoted some degree of time to researching, drafting, revising, and educating himself in the finer points of blogging, marketing, and sales, most, if not all, of these tasks were undertaken in years not in issue here.
Petitioner admitted that since 2008 he has not done much writing. Petitioner testified that the employment he obtained upon his return to the States did keep him from writing for the next couple of years. "[T]here must be some conscientious intent and effort to engage in and continue in the writing field for the purpose of producing income and a livelihood in order to have writing qualify as a trade or business”.
It doesn't get any better from there.
Probably the thing that hurt him the most was not doing any sort of planning or inquiry before burning through nearly $40,000. On the other hand you might argue that blogging was a much younger field in 2007 when he conceived of the idea. I read Blogging For Dummies in 2010 and the main emphasis was to deliver good content.
Josh represented himself in Tax Court, which is understandable given the relatively low stakes and did not put up much of a defense on the 20% penalty, so he was dinged with that.
Other Coverage
Eric Goldman covered the case in a forbes.com post titled Travel Blogger Denied Tax Writeoff For Eurpoean Backpacking Trip.
If you want to quit your job and travel the world, go for it. Life’s too short not to follow your dream. And if you want to blog, by all means, join the club! But if you want to blog for profit…well, you might want to rethink that plan. Either you know something I don’t or you’re (as my grandma would say meshugenah.
For the edification of those recently arrived from Mars, Judge Paris states: “’Blog’ is a truncation of the expression ‘Web log’, which is a regularly updated Web site or Web page written in an informal or conversational style and typically run by an individual or small group.”
To be fair to the judge, it is important to remember that this seems to be the first tax decision of any sort about blogging , so perhaps definitions are in order.
Lew continues
I can understand Jason wanting to be coy about where the best ice cream in Europe can be found, lest the place be overrun with Tax Court Judges and bloggers, and suffer the fate described by that eminent sage Lawrence Paul Berra: “Nobody goes there any more, it’s too crowded.”
Joe Kristan also picked up the case.
I had a great time on vacation last month, but it would have been sweeter if I could figure out a way to deduct it. Maybe if I mentioned it here at the Tax Update Blog? Alas, a Tax Court case this week thwarts my cunning scheme.
The Moral? Travel may be broadening, and fun, but not necessarily deductible. Before spending $39,000 on it, you might want to figure out how to earn it back first.
Most of the other coverage I noted is based on Eric's piece. It seems that I may be the only tax geek who thought of the Wayback Machine which preserved the otherwise lost blog.
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