WEBVTT NOTE This file was generated by Descript 00:00:08.209 --> 00:00:11.840 Speaker: Welcome to Real Estate is Taxing, where we talk about all things real estate 00:00:11.870 --> 00:00:16.869 tax and break down complex concepts into understandable, entertaining tax topics. 00:00:17.440 --> 00:00:21.259 My name is Natalie Kalady, I'm your host, and I am so excited 00:00:21.259 --> 00:00:22.670 that you've decided to join me. 00:00:23.248 --> 00:00:23.518 Microphone (Shure MV7): Hello. 00:00:23.518 --> 00:00:24.658 Hello everyone. 00:00:24.688 --> 00:00:27.208 And welcome to today's episode. 00:00:27.708 --> 00:00:28.188 Today. 00:00:28.188 --> 00:00:32.028 I want to circle back to the short-term rental loophole a little bit. 00:00:32.508 --> 00:00:35.328 But we are going to talk about some of the guidance. 00:00:35.688 --> 00:00:38.988 And court cases related to this topic. 00:00:40.618 --> 00:00:43.078 So I'm a big fan of reading court cases. 00:00:43.678 --> 00:00:45.298 I love reading tax court cases. 00:00:45.408 --> 00:00:46.788 They just add a ton of context. 00:00:46.788 --> 00:00:48.288 They add a lot of understanding. 00:00:48.738 --> 00:00:49.788 And to me that is. 00:00:50.358 --> 00:00:51.558 Immensely important. 00:00:51.618 --> 00:00:51.858 Right? 00:00:51.858 --> 00:00:53.868 That's what really helps us understand. 00:00:54.408 --> 00:00:56.058 What is meant behind the law. 00:00:56.418 --> 00:00:58.878 And not just have it be an obscure thought on paper. 00:00:59.688 --> 00:01:01.008 So all of that said. 00:01:01.758 --> 00:01:04.218 We are going to dive into a handful of court cases today 00:01:04.218 --> 00:01:05.868 related to short-term rentals. 00:01:06.178 --> 00:01:09.798 Some of these are not court cases, they're revenue procedures, or revenue 00:01:09.798 --> 00:01:11.748 reviews or guidance or things like that. 00:01:11.748 --> 00:01:14.028 But we'll differentiate what we're talking about. 00:01:14.658 --> 00:01:16.308 But all of these relate to short-term rentals. 00:01:16.938 --> 00:01:18.168 The thing that prompted this. 00:01:18.228 --> 00:01:20.658 So I have always had some court cases. 00:01:20.658 --> 00:01:22.188 I've had sort of a folder of these. 00:01:22.668 --> 00:01:25.578 And I referenced them in my short-term rental classes. 00:01:26.478 --> 00:01:29.088 I've always had some cases, but I had a feeling there was more. 00:01:29.718 --> 00:01:32.418 And not too long ago, someone shared an article with me. 00:01:33.018 --> 00:01:37.938 That was written by a pretty prominent, like real estate related tax person. 00:01:38.778 --> 00:01:39.918 And they said. 00:01:40.578 --> 00:01:42.228 That the short-term rental loophole. 00:01:42.228 --> 00:01:45.708 I was risky because the laws that allowed it were outdated. 00:01:46.128 --> 00:01:49.818 Because they were written and existed before Airbnb and 00:01:49.818 --> 00:01:51.108 short-term rentals really did. 00:01:51.978 --> 00:01:53.928 And they also said that, unfortunately, we didn't really 00:01:53.928 --> 00:01:55.188 have any court guidance on this. 00:01:55.998 --> 00:01:57.498 And neither of those things are true. 00:01:57.738 --> 00:02:00.168 That's not how laws work. 00:02:00.708 --> 00:02:05.868 Laws don't just become obsolete without there being some kind of change to them. 00:02:06.138 --> 00:02:06.408 Right. 00:02:06.408 --> 00:02:07.458 So there are some laws. 00:02:07.938 --> 00:02:12.648 That have been replaced with other laws or they have been adopted over the years. 00:02:13.338 --> 00:02:15.798 But there are plenty of laws that were written. 00:02:16.488 --> 00:02:18.168 In the forties and the fifties. 00:02:18.648 --> 00:02:20.388 That are still what we use today. 00:02:20.778 --> 00:02:24.378 So even if a law is from forever ago, If it still applies to 00:02:24.378 --> 00:02:25.788 the specific circumstance. 00:02:26.418 --> 00:02:29.388 Then, if it applies to this specific circumstance, so tax 00:02:29.388 --> 00:02:31.548 laws, don't just become outdated. 00:02:32.048 --> 00:02:33.158 And then the next statement. 00:02:33.938 --> 00:02:37.988 That we didn't have any court cases related to short-term rentals. 00:02:38.708 --> 00:02:39.608 Also just not true. 00:02:39.668 --> 00:02:40.778 There's quite a few. 00:02:40.778 --> 00:02:45.768 So We are going to jump through some of these court cases and revenue rulings. 00:02:46.458 --> 00:02:48.828 And guidance related to short-term rentals. 00:02:49.308 --> 00:02:51.648 if you want to read through the whole entire thing. 00:02:52.068 --> 00:02:53.688 I'll provide a link in the show notes. 00:02:54.288 --> 00:02:54.708 So. 00:02:55.208 --> 00:02:56.738 That being said the first. 00:02:57.068 --> 00:02:58.928 Case we have to look at today. 00:02:59.348 --> 00:03:00.878 It's from 1965. 00:03:01.778 --> 00:03:02.828 Now this case. 00:03:03.338 --> 00:03:07.238 Is actually from the us court of appeals comes from the ninth circuit. 00:03:07.738 --> 00:03:08.368 And. 00:03:09.118 --> 00:03:12.118 Did Airbnb exist in 1965? 00:03:12.538 --> 00:03:13.678 No, it didn't. 00:03:14.548 --> 00:03:20.848 But do you guys think that renting of property has existed for centuries? 00:03:21.298 --> 00:03:21.808 Yes. 00:03:22.468 --> 00:03:25.888 And do you think renting property for various lengths of time 00:03:25.948 --> 00:03:28.258 has existed for centuries? 00:03:28.828 --> 00:03:29.608 Also, yes. 00:03:30.268 --> 00:03:34.078 So even though the like, present most common. 00:03:34.708 --> 00:03:38.578 Experience of short-term rental didn't exist in 1965. 00:03:39.238 --> 00:03:43.738 It's still existed as a, as a premise, as something that could be clarified and. 00:03:44.248 --> 00:03:45.208 Defined by law. 00:03:45.708 --> 00:03:47.958 So this was actually not a tax court case. 00:03:48.618 --> 00:03:50.448 This was from the us court of appeals. 00:03:50.838 --> 00:03:52.668 So this was Dell, Dell? 00:03:52.668 --> 00:03:54.438 No, D E L N O. 00:03:54.918 --> 00:04:00.048 V Celebrita C E L E B R E Z E. 00:04:00.978 --> 00:04:06.018 And in this case, this was the first case I could kind of find earliest. 00:04:06.018 --> 00:04:06.678 I could find. 00:04:07.158 --> 00:04:10.338 At the end of the day, in this case, what ended up happening? 00:04:10.338 --> 00:04:14.158 This was a mixed use property with some short term, some longer. 00:04:14.468 --> 00:04:20.318 But those shorter term, Units were almost more for in-home care. 00:04:20.318 --> 00:04:22.538 Like they provided really a little bit more to them. 00:04:22.538 --> 00:04:24.038 It was almost like supervise rentals. 00:04:24.538 --> 00:04:27.508 And so even though that was the case, so some of these units 00:04:27.508 --> 00:04:29.578 were rented on shorter basis. 00:04:29.938 --> 00:04:31.588 And the taxpayer did. 00:04:32.008 --> 00:04:36.178 A fair amount of what we would really now consider substantial services. 00:04:37.048 --> 00:04:42.178 So in this case, the taxpayer went in a few times a month, like two to three 00:04:42.178 --> 00:04:46.318 times a month and cleaned and maintain the kitchens to make sure they didn't get to. 00:04:46.718 --> 00:04:47.888 Like in too bad of shape. 00:04:48.608 --> 00:04:52.448 They would clean the windows quarterly. 00:04:52.478 --> 00:04:54.068 They had that professionally cleaned. 00:04:54.728 --> 00:04:57.818 And in addition to this, the taxpayer would even do. 00:04:58.088 --> 00:04:58.958 Trash removal. 00:04:59.438 --> 00:05:00.758 And not just from. 00:05:01.448 --> 00:05:04.418 Like these shared areas, which is incredibly common. 00:05:04.418 --> 00:05:06.158 That's not a substantial service. 00:05:06.998 --> 00:05:09.488 But the taxpayer would literally go into the apartments. 00:05:10.118 --> 00:05:12.398 Remove their bag of trash, taken out to the dumpster. 00:05:12.898 --> 00:05:15.418 In today's terms, like kind of what we know today. 00:05:15.418 --> 00:05:19.258 If someone was coming in a few times a month and cleaning for me and cleaning my 00:05:19.258 --> 00:05:21.118 windows and taking out my trash every day. 00:05:21.628 --> 00:05:24.658 Those are probably substantial services that's above and beyond the 00:05:24.658 --> 00:05:26.338 standard of what you would receive. 00:05:26.838 --> 00:05:28.548 In a longterm rental. 00:05:29.418 --> 00:05:31.758 These are services that have a substantial value to them. 00:05:32.448 --> 00:05:35.718 However, in this case in 1965. 00:05:36.588 --> 00:05:40.908 It was determined that in spite of that happening, it wasn't on every unit, 00:05:40.908 --> 00:05:42.228 but it was on a fair amount of them. 00:05:42.258 --> 00:05:43.518 And it was like 15 units. 00:05:44.018 --> 00:05:45.368 In spite of all of these services. 00:05:45.998 --> 00:05:50.318 The court ruled that these were essentially not substantial services. 00:05:50.768 --> 00:05:55.148 They decided this taxpayer's income was not subject to self-employment tax. 00:05:55.598 --> 00:05:59.378 We only have self-employment tax on rentals when they are providing 00:05:59.378 --> 00:06:00.818 those substantial services. 00:06:01.318 --> 00:06:03.148 And the court decided that didn't come to that level. 00:06:03.868 --> 00:06:07.498 Even though it was a handful of services that did have a fairly decent value. 00:06:08.108 --> 00:06:09.398 The big, final point. 00:06:10.088 --> 00:06:12.038 Of the court in this case. 00:06:12.908 --> 00:06:16.058 Was the idea that it was close to impossible. 00:06:16.598 --> 00:06:18.218 To fully separate. 00:06:18.818 --> 00:06:23.978 The investment of someone's capital into real estate with the requirement 00:06:24.158 --> 00:06:25.808 of an investment of their time. 00:06:26.678 --> 00:06:27.218 That. 00:06:27.818 --> 00:06:32.708 In most circumstances, if someone was buying property to rent, That there was 00:06:32.708 --> 00:06:37.448 some time requirement kind of tied in with conjunction to the money they put into it. 00:06:37.808 --> 00:06:40.058 It wasn't typically one or the other. 00:06:40.928 --> 00:06:43.418 Now I'm not super familiar with the real estate market 00:06:43.418 --> 00:06:46.328 in 1965 or what was standard. 00:06:46.838 --> 00:06:50.888 My guess is there were less, less options available for like property management. 00:06:50.888 --> 00:06:54.428 We obviously didn't have the same kind of technical and 00:06:54.458 --> 00:06:56.198 digital tools that we have today. 00:06:56.978 --> 00:07:00.008 So my assumption is that it was much more common for anyone who 00:07:00.008 --> 00:07:01.328 was a landlord at those times. 00:07:01.658 --> 00:07:05.198 To have to kind of put some more time into the overall maintenance 00:07:05.198 --> 00:07:06.638 and management of their properties. 00:07:07.178 --> 00:07:11.288 So the court basically said that it's really hard to separate those two things, 00:07:11.288 --> 00:07:14.018 your investment in real estate, with the amount of time it takes to sort of 00:07:14.018 --> 00:07:16.388 operate your investment in real estate. 00:07:16.838 --> 00:07:20.288 So even though there was multiple cleanings during the 00:07:20.288 --> 00:07:23.428 month external cleanings on windows and trash removal daily. 00:07:23.908 --> 00:07:27.088 The court decided that that was still not subject to self-employment tax. 00:07:27.658 --> 00:07:29.128 So that's kind of a big win. 00:07:29.578 --> 00:07:30.568 On our side of things, right. 00:07:30.568 --> 00:07:33.628 We do not want rentals on schedule C paying self-employment tax. 00:07:34.128 --> 00:07:36.948 The next item of guidance that came out was a revenue ruling. 00:07:37.818 --> 00:07:41.508 And this was revenue ruling, 72 dash 3 31. 00:07:42.168 --> 00:07:46.218 And this was actually an example of a mobile home park. 00:07:46.878 --> 00:07:50.838 And in this court case, the taxpayer provided what we would now 00:07:50.838 --> 00:07:53.238 consider very standard services. 00:07:53.548 --> 00:07:57.748 They would maintain the like city utility lines into the property. 00:07:58.318 --> 00:08:03.238 They were maintaining the communal like laundry area and bathrooms. 00:08:03.238 --> 00:08:04.918 Like if there was a shared public bathroom. 00:08:05.608 --> 00:08:10.768 And they were also maintaining the road that led into the community, like the 00:08:10.768 --> 00:08:15.058 public road, if it snowed, if it needed to be repaved, any of those things. 00:08:15.538 --> 00:08:16.978 The property owner maintained. 00:08:17.378 --> 00:08:21.308 They didn't do anything to the people's individual mobile homes. 00:08:21.698 --> 00:08:23.618 Just overall community maintenance. 00:08:24.518 --> 00:08:27.338 And in this revenue ruling in 1972. 00:08:28.118 --> 00:08:30.278 It was decided that those services. 00:08:30.998 --> 00:08:33.518 We're outside of the normal scope. 00:08:33.968 --> 00:08:38.108 Of what would be provided for the rental of rooms or spaces? 00:08:38.408 --> 00:08:39.578 Only for occupancy. 00:08:40.568 --> 00:08:42.788 So this 1972 case. 00:08:43.508 --> 00:08:44.468 This revenue ruling. 00:08:45.398 --> 00:08:47.888 Decided that that income was indeed. 00:08:48.368 --> 00:08:49.838 Subject to self-employment tax. 00:08:50.338 --> 00:08:52.198 So that's a little kooky because. 00:08:52.748 --> 00:08:54.068 Most of those are pretty standard. 00:08:54.728 --> 00:08:55.778 But at the time it wasn't. 00:08:56.348 --> 00:08:58.958 So this is why looking back at these guidance points is 00:08:58.958 --> 00:09:01.268 really important because you can kind of see the progression. 00:09:01.898 --> 00:09:06.398 Of where things adapted and where the courts and guidance shifted. 00:09:07.328 --> 00:09:12.368 So first, first case from court of appeals, 1965, lots of services. 00:09:12.368 --> 00:09:13.448 No self-employment tax. 00:09:14.108 --> 00:09:18.278 1972 Riverland came out for a mobile home park and said, yeah, self-employment 00:09:18.278 --> 00:09:21.758 tax, even though all they're doing is maintaining the shared spaces. 00:09:22.258 --> 00:09:25.018 This then gets kind of contrasted. 00:09:25.618 --> 00:09:26.848 In 1983. 00:09:27.088 --> 00:09:28.348 So it's about 10 years later. 00:09:29.008 --> 00:09:32.548 We have revenue ruling, 83 dash 1 39. 00:09:33.298 --> 00:09:37.438 And in this example, We have another mobile home park. 00:09:37.938 --> 00:09:41.478 And this rev ruling is incredibly important because it ends up. 00:09:41.958 --> 00:09:42.708 Basically. 00:09:43.208 --> 00:09:49.088 Replacing or voiding reveling seven two dash 3 3 1. 00:09:49.328 --> 00:09:50.738 It makes that obsolete. 00:09:51.128 --> 00:09:53.618 No longer something that can be relied upon. 00:09:54.248 --> 00:09:57.938 It basically crossed it out, replace it with a new train of thought. 00:09:58.838 --> 00:10:00.758 So in between these two revel rulings. 00:10:01.298 --> 00:10:04.808 1972, we have self-employment tax for maintaining general 00:10:04.808 --> 00:10:05.888 areas of mobile home park. 00:10:06.338 --> 00:10:07.538 By 1983. 00:10:08.168 --> 00:10:11.168 We have a rev ruling that goes the other direction and says, don't worry. 00:10:11.168 --> 00:10:13.778 We're not even looking at that one from 10 years ago anymore. 00:10:13.778 --> 00:10:14.318 It's obsolete. 00:10:15.188 --> 00:10:16.268 In between these two. 00:10:16.768 --> 00:10:20.518 In 1978, there was a mobile home park case. 00:10:20.908 --> 00:10:22.138 This was a tax court case. 00:10:22.858 --> 00:10:25.258 And this was Bobo V commissioner. 00:10:25.978 --> 00:10:31.648 And in this case, it was a lot of the same things from that 00:10:31.648 --> 00:10:33.568 earlier reveling, they maintained. 00:10:34.078 --> 00:10:36.058 Utilities, they provided heat and light. 00:10:36.118 --> 00:10:37.978 They kept public areas clean. 00:10:38.288 --> 00:10:42.038 They collected trash from like outside the properties. 00:10:42.038 --> 00:10:45.098 When people would put out their trash cans, And in this court case. 00:10:45.968 --> 00:10:50.768 It was determined that those things did not generate self-employment tax. 00:10:51.608 --> 00:10:55.598 So 1972 rev ruling says the up doing all these kinds of communal area 00:10:55.598 --> 00:10:57.218 things create self-employment tax. 00:10:57.878 --> 00:11:00.068 Six years later, the tax court says, no, it doesn't. 00:11:00.398 --> 00:11:02.948 That's not doing a substantial service. 00:11:03.368 --> 00:11:07.418 To the tenant to like, make their stay better. 00:11:08.198 --> 00:11:12.968 It is not something provided for the convenience and improvement of their 00:11:12.968 --> 00:11:16.988 actual occupancy of the location that has a substantial value where like they're 00:11:16.988 --> 00:11:19.328 paying more rent for these services. 00:11:19.868 --> 00:11:21.488 They were like on any property, maintaining. 00:11:22.028 --> 00:11:25.778 Like the communal spaces and the road and making sure trash doesn't pile up. 00:11:25.808 --> 00:11:26.768 Those are just normal. 00:11:26.768 --> 00:11:29.348 That's just has to happen for any rental. 00:11:29.848 --> 00:11:31.978 So 1978 tax courts, like, Nope. 00:11:32.458 --> 00:11:33.838 That is not self-employment tax. 00:11:33.928 --> 00:11:34.558 We're not doing it. 00:11:35.398 --> 00:11:38.848 So then, like I said, by 1983, we have that RiverLink. 00:11:39.778 --> 00:11:41.398 Which agreed with it. 00:11:41.698 --> 00:11:42.958 It was a similar case. 00:11:43.408 --> 00:11:47.488 But in that rev ruling eight three dash 1 39. 00:11:48.028 --> 00:11:50.638 This mobile home park did all of those same services. 00:11:50.638 --> 00:11:51.928 The communal areas. 00:11:52.228 --> 00:11:54.358 Cleaning up trash, maintaining utility lines. 00:11:54.718 --> 00:11:55.468 But. 00:11:56.278 --> 00:12:00.328 This mobile home park also had extra facilities. 00:12:00.828 --> 00:12:03.528 So in this circumstance, they also had a recall. 00:12:04.248 --> 00:12:09.048 Which had a card area and a pool room, an auditorium, a theater with a stage. 00:12:09.588 --> 00:12:12.348 And they were all staffed by employees. 00:12:13.188 --> 00:12:17.868 And on top of that, it was noted that they would host numerous recreational events. 00:12:18.368 --> 00:12:22.088 So in this case, This 1983 rev ruling. 00:12:22.718 --> 00:12:25.688 They decide that this is what is subject to self-employment tax. 00:12:26.198 --> 00:12:29.888 This is obviously far above and beyond those earlier two cases 00:12:29.888 --> 00:12:31.178 related to mobile home parks. 00:12:31.718 --> 00:12:34.598 It's not just maintaining somewhere for you to park your home. 00:12:35.078 --> 00:12:36.848 They're providing extra spaces. 00:12:36.848 --> 00:12:38.738 They're providing people to run those spaces. 00:12:38.738 --> 00:12:40.118 They are providing events. 00:12:40.448 --> 00:12:43.748 They are giving you all kinds of extracurricular activities and people 00:12:43.748 --> 00:12:45.458 there to set it up and keep track of it. 00:12:46.418 --> 00:12:47.588 So that's the level. 00:12:47.888 --> 00:12:49.418 Where we have self-employment tax. 00:12:50.048 --> 00:12:53.588 So this reveling specifically made. 00:12:53.918 --> 00:12:56.588 That initial one revenue ruling 72, 3 31. 00:12:57.098 --> 00:12:57.788 Obsolete. 00:12:58.288 --> 00:13:00.178 What they basically determined. 00:13:00.598 --> 00:13:04.408 In this ruling, is that whenever we're looking at a short-term property or 00:13:04.408 --> 00:13:05.908 any kind of rental property, really. 00:13:06.408 --> 00:13:09.618 But when you are analyzing this, there kind of has to be a two-step approach. 00:13:09.618 --> 00:13:11.118 And that's what they took here. 00:13:11.448 --> 00:13:13.098 And that's what they suggested pretty much. 00:13:13.608 --> 00:13:14.628 So step one. 00:13:15.108 --> 00:13:18.498 Is figuring out if there are services provided. 00:13:19.068 --> 00:13:22.308 For the convenience of the occupant, right. 00:13:22.308 --> 00:13:23.688 Are they providing something? 00:13:24.228 --> 00:13:28.578 That is directly related to their stay to make it easier to make it better, or is 00:13:28.578 --> 00:13:30.318 it just sort of overall maintenance items? 00:13:30.828 --> 00:13:31.938 So that's the first step. 00:13:32.438 --> 00:13:34.898 Even after you identify those things. 00:13:35.438 --> 00:13:39.188 Because could it be argued that picking up trash for someone 00:13:39.188 --> 00:13:40.328 is for their convenience. 00:13:40.718 --> 00:13:41.498 Absolutely. 00:13:42.278 --> 00:13:44.588 But it's also not uncommon. 00:13:44.618 --> 00:13:47.378 So first step is figuring out if their services. 00:13:48.218 --> 00:13:49.418 The second step. 00:13:49.988 --> 00:13:51.698 Is then you need to figure out. 00:13:52.298 --> 00:13:55.448 Whether the value of those services provided. 00:13:56.018 --> 00:14:01.448 Makes up a material portion of the payments being collected for rent. 00:14:01.928 --> 00:14:03.308 From the occupants. 00:14:03.808 --> 00:14:07.648 So this was a super important revenue ruling because it gives us this 00:14:07.648 --> 00:14:09.778 mindset and clearly states this. 00:14:10.738 --> 00:14:11.788 Two step approach. 00:14:12.448 --> 00:14:16.468 And I get asked this quite a bit from taxpayers and tax professionals. 00:14:16.968 --> 00:14:20.478 Who will say, Natalie, we have a short-term rental. 00:14:20.808 --> 00:14:25.368 We do provide this service, but we don't do these other five services 00:14:25.368 --> 00:14:27.078 that are typically seen as substantial. 00:14:27.648 --> 00:14:30.948 Is it subject to self-employment tax or from only doing this one thing? 00:14:31.668 --> 00:14:34.728 And like with a lot of things in tax, the answer is, it depends. 00:14:35.358 --> 00:14:37.098 But this is the consideration. 00:14:37.578 --> 00:14:41.838 What we learned from this 1983 rev ruling this two step approach. 00:14:42.378 --> 00:14:47.868 So if a property is providing any kind of services, You then have to look 00:14:47.868 --> 00:14:50.208 at, do they have a substantial value? 00:14:50.848 --> 00:14:51.988 Is the amount. 00:14:52.378 --> 00:14:56.638 Where the value of these services, does that make up a material portion? 00:14:57.358 --> 00:14:58.258 Of the amount. 00:14:58.618 --> 00:15:00.268 That the occupant is paying in rent. 00:15:01.168 --> 00:15:05.668 If it doesn't, if these are things that on their own are pretty insubstantial 00:15:05.898 --> 00:15:09.438 Then they're not as substantial service, they're just sort of an incidental. 00:15:09.918 --> 00:15:11.268 So keep that in mind. 00:15:11.328 --> 00:15:15.138 Two part approach are there services and if there are. 00:15:15.678 --> 00:15:17.688 What's the real value to them. 00:15:18.078 --> 00:15:19.368 If it's not a large amount. 00:15:20.118 --> 00:15:22.848 Then it's likely, still not subject to self-employment tax. 00:15:22.848 --> 00:15:24.408 Microphone (Shure MV7)-1: by this point, we're really sort of 00:15:24.408 --> 00:15:26.088 starting to set a standard, right? 00:15:26.088 --> 00:15:28.038 Like we are starting to prove. 00:15:28.548 --> 00:15:31.098 What they consider a substantial service. 00:15:31.098 --> 00:15:34.368 We are getting some good, clear examples of the differences that are looking at, 00:15:34.968 --> 00:15:36.528 and we get to take this and move forward. 00:15:37.428 --> 00:15:39.408 So there are a handful of more cases. 00:15:40.338 --> 00:15:43.368 That relate to this and some of them. 00:15:43.758 --> 00:15:46.218 Actually came from a unique angle. 00:15:47.058 --> 00:15:49.548 Which there's a handful of court cases. 00:15:50.238 --> 00:15:51.558 That came into play. 00:15:52.248 --> 00:15:55.428 Because of taxpayers applying for retirement benefits. 00:15:55.878 --> 00:15:58.578 So when you go to apply for social security or like certain 00:15:58.578 --> 00:16:01.488 insurance benefits, you need to have a certain amount of quarters 00:16:01.488 --> 00:16:03.948 that you paid in to the system. 00:16:04.488 --> 00:16:06.168 So there were several cases. 00:16:06.678 --> 00:16:11.028 We're taxpayers who owned real estate were trying to argue that it did 00:16:11.028 --> 00:16:13.068 qualify for self-employment tax. 00:16:13.398 --> 00:16:18.648 They wanted to switch it over to being schedule C non-passive 00:16:18.648 --> 00:16:20.058 and paying self-employment tax. 00:16:20.598 --> 00:16:23.088 Because they didn't have enough time put in. 00:16:23.478 --> 00:16:27.648 To now qualify for the benefits that they were looking for in retirement. 00:16:28.368 --> 00:16:33.018 So there's a handful of these cases, but one of my favorite ones or the 00:16:33.018 --> 00:16:37.608 one that I think was kind of most clear, we had this case in 1986. 00:16:38.118 --> 00:16:40.698 And this was another court of appeals. 00:16:40.788 --> 00:16:42.858 So this was a ninth circuit court of appeals case. 00:16:43.398 --> 00:16:45.918 And this was a Holohan B heckler. 00:16:46.418 --> 00:16:46.868 So. 00:16:47.368 --> 00:16:48.538 In this example. 00:16:49.198 --> 00:16:51.358 This taxpayer had actually. 00:16:51.758 --> 00:16:54.788 Reported a piece of real estate that they owned for years and years. 00:16:54.788 --> 00:16:56.468 This was a commercial office building. 00:16:57.188 --> 00:17:00.098 And they were leasing it to an army recruiting office. 00:17:00.818 --> 00:17:02.498 Now part of their lease. 00:17:02.998 --> 00:17:04.558 Specifically required. 00:17:04.558 --> 00:17:05.638 And this wasn't from the taxpayer. 00:17:05.638 --> 00:17:08.728 This was from like the military requirement for using this space. 00:17:09.448 --> 00:17:14.548 Required that the taxpayer did clean the office and the 00:17:14.548 --> 00:17:16.198 bathroom of the office daily. 00:17:16.918 --> 00:17:21.328 They would sweep, mop and buff the floors monthly. 00:17:21.928 --> 00:17:23.938 And they would wash all of the windows and. 00:17:23.968 --> 00:17:24.568 And kind of the X. 00:17:24.568 --> 00:17:25.348 Exterior. 00:17:25.738 --> 00:17:27.058 Quarterly as well. 00:17:27.488 --> 00:17:29.408 So these were quite a few services. 00:17:29.408 --> 00:17:30.878 The taxpayer was providing. 00:17:31.358 --> 00:17:32.618 That were outside of the norm. 00:17:33.118 --> 00:17:35.038 But they hadn't been reporting it that way. 00:17:35.518 --> 00:17:38.728 Historically, they did not report this as a schedule C rental 00:17:38.728 --> 00:17:40.258 subject to self-employment tax. 00:17:40.738 --> 00:17:44.068 They were reporting it on schedule E as a passive rental. 00:17:44.698 --> 00:17:48.148 And then when they went to apply for benefits and found out they didn't 00:17:48.148 --> 00:17:51.328 have enough time paid in and they kind of looked over the requirements. 00:17:52.198 --> 00:17:53.668 The taxpayer said, oh, well, wait a minute. 00:17:54.358 --> 00:17:58.678 I was doing a lot of these things that would be more of a substantial service. 00:17:58.678 --> 00:18:00.148 So I'm going to amend. 00:18:00.718 --> 00:18:02.338 Three years of tax returns. 00:18:02.728 --> 00:18:05.728 So the taxpayer went back and amended three years of their returns to 00:18:05.728 --> 00:18:09.958 move their rental, to schedule C and to pay self-employment tax on it. 00:18:10.468 --> 00:18:13.678 So that they would have enough quarters paid in to qualify 00:18:13.678 --> 00:18:14.998 for these retirement benefits. 00:18:15.838 --> 00:18:17.938 And ultimately in this court of appeals. 00:18:18.568 --> 00:18:23.728 They landed on the decision that, that didn't qualify. 00:18:24.358 --> 00:18:27.358 That the services that this taxpayer was providing. 00:18:28.168 --> 00:18:31.168 Did not subject them to self-employment tax. 00:18:31.948 --> 00:18:33.088 They said that these. 00:18:33.688 --> 00:18:37.228 These services that are to me above and beyond the standard, 00:18:37.228 --> 00:18:40.528 but, you know, cleaning daily, that's pretty above and beyond. 00:18:40.978 --> 00:18:42.628 Monthly cleaning the floors. 00:18:42.898 --> 00:18:44.218 That's pretty above and beyond. 00:18:44.718 --> 00:18:48.948 They ruled that it was merely incidental to the effective 00:18:48.978 --> 00:18:50.628 operation of the building. 00:18:51.438 --> 00:18:55.158 And that it did not subject the taxpayer to self-employment tax. 00:18:56.088 --> 00:18:59.718 They lumped it in the same category as the removal of trash, the 00:18:59.748 --> 00:19:03.408 installing of like water coolers and air conditioning filters. 00:19:04.038 --> 00:19:10.548 They almost set in my mind, a separate precedent for commercial office space. 00:19:10.938 --> 00:19:13.668 They, what is considered standard. 00:19:14.298 --> 00:19:16.848 For maintaining an office space where there's going to be multiple 00:19:16.848 --> 00:19:17.898 people in and out of there. 00:19:17.898 --> 00:19:21.198 It's not like one tenant, typically one person who is just 00:19:21.198 --> 00:19:22.848 staying there and responsible. 00:19:23.658 --> 00:19:28.008 They were saying that this is part of the standard operations of offices. 00:19:28.578 --> 00:19:32.148 So we've now had this established pattern that for a mobile home park. 00:19:32.778 --> 00:19:36.378 Doing the general grounds, keeping, maintaining the premises, 00:19:36.408 --> 00:19:38.028 maintaining those shared spaces. 00:19:38.598 --> 00:19:39.888 Not self-employment tax. 00:19:39.918 --> 00:19:41.358 That is standard operations. 00:19:42.018 --> 00:19:45.978 And now this court case kind of says that, you know, in an office building, setting. 00:19:46.458 --> 00:19:49.548 These more frequent cleanings because there's going to be potentially 00:19:49.548 --> 00:19:50.958 the public coming in there. 00:19:51.268 --> 00:19:53.638 It is going to be shared by numerous employees. 00:19:53.638 --> 00:19:57.298 It's not just like a family saying there that the person who owns the 00:19:57.298 --> 00:20:01.138 property, maintaining it a little more for that sort of public use almost. 00:20:01.918 --> 00:20:04.108 Is standard is part of the industry. 00:20:04.828 --> 00:20:08.248 So it's kind of an interesting case because that is what we would consider 00:20:08.248 --> 00:20:13.858 today to be substantial services, if provided that way in relation to any 00:20:13.858 --> 00:20:15.928 kind of a vacation rental, right. 00:20:16.528 --> 00:20:21.238 So the comparison we typically use now is looking at a hotel for 00:20:21.238 --> 00:20:22.678 what is a substantial service. 00:20:23.368 --> 00:20:25.468 And examples of what you would get in a hotel that are 00:20:25.468 --> 00:20:27.238 substantial are going to be. 00:20:27.658 --> 00:20:31.948 Services during your stay that have a value daily cleaning, 00:20:31.978 --> 00:20:34.108 fresh sheets for us linens. 00:20:34.468 --> 00:20:36.538 Cleaning and vacuuming day to day. 00:20:37.138 --> 00:20:39.028 All of those things we would consider. 00:20:39.538 --> 00:20:42.898 Items that could shift it over to being subject to self-employment tax. 00:20:43.738 --> 00:20:46.318 But in this case, what we're seeing is very similar. 00:20:46.648 --> 00:20:48.238 Frequency of services. 00:20:49.048 --> 00:20:51.178 But sort of a different scope of what is done. 00:20:51.678 --> 00:20:55.758 Are considered normal with the realm of office building. 00:20:56.238 --> 00:21:01.098 So kind of an interesting counterpoint here that was 1986. 00:21:01.248 --> 00:21:03.318 We had another case with a lot of services. 00:21:03.708 --> 00:21:05.088 No self-employment tax. 00:21:06.078 --> 00:21:07.878 There were a handful of other cases. 00:21:08.748 --> 00:21:13.028 That were somewhat related to this where There was a case in 1967. 00:21:13.028 --> 00:21:14.228 So it kind of an older case. 00:21:14.258 --> 00:21:16.238 And in this one, they were trying to decide. 00:21:16.898 --> 00:21:19.268 The property had been incorrectly reported for a while. 00:21:19.268 --> 00:21:19.598 There. 00:21:19.958 --> 00:21:23.648 And essentially what happened was it wasn't reported jointly. 00:21:24.638 --> 00:21:29.288 So then later on one of the taxpayer or spouse, one of them had much 00:21:29.318 --> 00:21:33.578 more paid in than the other, even though they shared and all of 00:21:33.578 --> 00:21:34.928 the management of the properties. 00:21:35.008 --> 00:21:36.508 They provided services together. 00:21:36.538 --> 00:21:38.338 This was schedule C property. 00:21:38.818 --> 00:21:39.358 But. 00:21:40.078 --> 00:21:43.738 The court in that one was like, Nope, you don't have a clear proof of who did what? 00:21:43.738 --> 00:21:45.058 So we can't reallocate. 00:21:45.478 --> 00:21:48.808 So not super related, but just something to be mindful of. 00:21:49.558 --> 00:21:51.838 Tracking and reporting correctly for who? 00:21:52.498 --> 00:21:57.058 Is actually doing the services on a property, like whose rental is 00:21:57.058 --> 00:21:58.648 this or whose business is this? 00:21:59.128 --> 00:22:02.248 Because whether something is marked for taxpayer or spouse or join. 00:22:02.848 --> 00:22:07.108 It's going to impact the amount paid into your account, the taxpayer 00:22:07.108 --> 00:22:10.888 spouse to that specific person's social security sort of their credit. 00:22:11.588 --> 00:22:13.448 There was another case in 87. 00:22:14.228 --> 00:22:15.098 That was Woodworth. 00:22:15.128 --> 00:22:17.348 And this was a us district court case. 00:22:17.888 --> 00:22:21.098 And this one was a little bit interesting because this was a partnership. 00:22:21.578 --> 00:22:25.898 Where it was a passive rental, but one of the partners was who did all 00:22:25.898 --> 00:22:27.398 of the maintenance on the property. 00:22:27.968 --> 00:22:29.228 And this isn't uncommon. 00:22:29.978 --> 00:22:33.698 So this taxpayer did all of the repairs and handyman services. 00:22:33.728 --> 00:22:35.528 They did pretty much everything possible. 00:22:36.038 --> 00:22:39.788 And if it got to a point where something was too complicated, they called in. 00:22:39.878 --> 00:22:41.138 You know, an outside contractor. 00:22:42.098 --> 00:22:44.078 The kind of unique piece to this. 00:22:45.068 --> 00:22:48.728 Was that, that taxpayer was also being paid for their services. 00:22:49.328 --> 00:22:52.538 It wasn't like, it was just their job within the partnership. 00:22:52.598 --> 00:22:55.088 They were operating it as a separate business. 00:22:55.598 --> 00:22:59.528 So even though the partnership was their only customer, they weren't doing handyman 00:22:59.528 --> 00:23:01.148 services for just the general public. 00:23:01.178 --> 00:23:02.558 They never advertise that. 00:23:02.948 --> 00:23:07.388 They only did work for this building, this specific partnership 00:23:07.388 --> 00:23:10.598 with a commercial building in it that they were part owner of. 00:23:11.288 --> 00:23:12.878 But they maintain it fully separately. 00:23:13.358 --> 00:23:15.458 They charged fees for it. 00:23:15.818 --> 00:23:18.308 They kept it tracked as a separate business, separate set 00:23:18.308 --> 00:23:19.778 of books, separate bank account. 00:23:20.328 --> 00:23:21.528 All of these different things. 00:23:22.028 --> 00:23:24.818 And part of what almost got him kind of caught up. 00:23:25.178 --> 00:23:26.948 Was even though he was being paid. 00:23:27.368 --> 00:23:28.298 For these services. 00:23:28.328 --> 00:23:31.838 So outside of the income and expense of the partnership, he received a specific 00:23:31.838 --> 00:23:34.268 payment for the repairs and handyman work. 00:23:34.268 --> 00:23:34.898 He did. 00:23:35.528 --> 00:23:38.558 He almost never received an actual check for it. 00:23:39.098 --> 00:23:42.308 He would just reinvest what he was being paid into the partnership. 00:23:42.308 --> 00:23:44.348 So he would have more equity in there and kind of, they. 00:23:44.858 --> 00:23:46.928 He would have more contributed capital and more funds he 00:23:46.928 --> 00:23:48.158 had put into the partnership. 00:23:48.368 --> 00:23:51.788 So he never really received, like in hand the payments. 00:23:52.328 --> 00:23:53.858 He did constructively. 00:23:54.218 --> 00:23:57.428 Like they use were payments issued to him and then booked as a 00:23:57.428 --> 00:23:59.768 reinvestment back into the partnership. 00:24:00.638 --> 00:24:04.748 So at the end of the day, because of the way it was structured, so specifically 00:24:04.748 --> 00:24:08.288 and run as a separate business and he was receiving specific payments. 00:24:08.678 --> 00:24:13.358 They ultimately decided that it did qualify for self-employment tax. 00:24:13.868 --> 00:24:16.388 So those constructive payments he received, even though they never 00:24:16.388 --> 00:24:20.078 hit his bank account, he booked them as income and reinvested it 00:24:20.078 --> 00:24:21.218 right back into the partnership. 00:24:21.608 --> 00:24:27.208 They were allowed to count that as income and quarters that counted towards 00:24:27.208 --> 00:24:29.488 paying in for his social security credit. 00:24:30.088 --> 00:24:31.858 So that was kind of interesting. 00:24:32.278 --> 00:24:36.748 The other key point that the court really reiterated with this. 00:24:37.738 --> 00:24:41.338 Was that it wasn't fair to just say that these services were part of 00:24:41.338 --> 00:24:43.318 the partnership, income or expense. 00:24:43.858 --> 00:24:47.638 Because it wasn't something incurred and it wasn't something where all of the 00:24:47.638 --> 00:24:49.228 partners were receiving payment for it. 00:24:49.918 --> 00:24:54.928 It's not like the entirety of everyone in the partnership was affected by this. 00:24:55.588 --> 00:25:00.298 This extra work and the income from it only related to the one taxpayer. 00:25:00.748 --> 00:25:04.408 So that was kind of a big sticking point for them where they said 00:25:04.408 --> 00:25:06.208 this was really run separately. 00:25:06.628 --> 00:25:09.418 From the operations of the building. 00:25:10.348 --> 00:25:12.298 So something to be mindful of. 00:25:12.388 --> 00:25:14.638 I know that there's quite a few taxpayers who they want 00:25:14.638 --> 00:25:16.048 to set up property management. 00:25:16.378 --> 00:25:18.298 But only manage their own properties. 00:25:18.868 --> 00:25:21.658 This is a good case to look at for precedent for that. 00:25:22.378 --> 00:25:25.228 Because it walks you through some of what they liked and didn't 00:25:25.228 --> 00:25:26.788 like about how this was set up. 00:25:27.268 --> 00:25:30.358 And it could help give you some more guidance to make sure that you and 00:25:30.358 --> 00:25:31.978 your attorney and tax professional. 00:25:32.608 --> 00:25:36.808 Have your management company set up in a way that it is valid and not 00:25:36.808 --> 00:25:38.338 just considered kind of intermixing. 00:25:38.698 --> 00:25:41.818 So that was the Woodworth case from 1987. 00:25:41.818 --> 00:25:42.478 That was a us doctor. 00:25:42.808 --> 00:25:44.068 District court case. 00:25:44.568 --> 00:25:46.638 We had another unique case. 00:25:46.968 --> 00:25:49.398 A little bit obscure, but same category. 00:25:49.588 --> 00:25:52.798 2013, this one was a Morehouse case. 00:25:53.128 --> 00:25:55.678 And this related to land rental. 00:25:56.158 --> 00:25:58.708 But what was interesting with this case? 00:25:59.248 --> 00:26:02.638 Was that he was part, the taxpayer was part of a program. 00:26:03.148 --> 00:26:06.598 Part of a government program So this program would pay you a certain amount. 00:26:07.108 --> 00:26:10.498 To maintain your land in a way to encourage wildlife that was natural 00:26:10.498 --> 00:26:15.688 to the area or to help, you know, replenish local wildlife populations 00:26:15.718 --> 00:26:19.288 or plants that needed to be replanted that were kind of local to the area. 00:26:19.648 --> 00:26:26.068 So basically to bring specific amounts of lands back to their original state. 00:26:26.828 --> 00:26:29.198 And in this case, the taxpayer. 00:26:29.198 --> 00:26:30.698 I was saying that. 00:26:31.118 --> 00:26:32.948 It was not subject to self-employment tax. 00:26:33.398 --> 00:26:36.128 They said I don't do anything on the property. 00:26:36.308 --> 00:26:39.308 I have these hundreds, maybe thousands of acres. 00:26:39.908 --> 00:26:42.638 And the government pays me to make sure they have certain plants and 00:26:42.638 --> 00:26:45.578 that, you know, they're not overgrown in this way and kept kind of according 00:26:45.578 --> 00:26:50.738 to these specifics and I pay a third party to maintain that land for me. 00:26:50.948 --> 00:26:54.998 So all I'm doing is getting paid for the use of my land and then 00:26:54.998 --> 00:26:56.108 someone else's maintaining it. 00:26:56.138 --> 00:26:57.458 I'm not providing a service. 00:26:57.998 --> 00:27:02.178 And in that case in 2013 the court did decide that that was 00:27:02.178 --> 00:27:03.678 subject to self-employment tax. 00:27:04.098 --> 00:27:05.898 Because they were like, this is above and beyond. 00:27:05.928 --> 00:27:09.108 Just renting someone, your land with no. 00:27:09.588 --> 00:27:12.618 Other stipulation or no other use to it, no other anything. 00:27:13.278 --> 00:27:17.418 They had to do a fair amount of work month to month to keep all of 00:27:17.418 --> 00:27:19.788 this acreage meeting the criteria. 00:27:20.298 --> 00:27:21.018 So. 00:27:21.738 --> 00:27:25.518 Again, in this case, they decided that was subject to self-employment tax 00:27:25.518 --> 00:27:29.718 because it was so different from the standard expectation of a land rental. 00:27:30.528 --> 00:27:33.588 Kind of interesting to look at it next to the earlier case. 00:27:34.308 --> 00:27:37.788 Of the army recruiting office, where it was part of their contract, that the 00:27:37.788 --> 00:27:41.838 taxpayer had to do these extra services, specifically the daily cleaning, the 00:27:42.148 --> 00:27:46.258 quarterly cleaning of the windows, the monthly floor cleaning and waxing. 00:27:46.648 --> 00:27:50.248 That was also per a specific contract and they decided it was 00:27:50.248 --> 00:27:51.898 not subject to self-employment tax. 00:27:52.558 --> 00:27:55.648 Because those services, as it related to normal office 00:27:55.648 --> 00:27:57.778 rental, Weren't that different. 00:27:58.348 --> 00:28:01.978 But in this case, the extra planting and mowing and tilling and all of these 00:28:01.978 --> 00:28:06.088 things that were very specific with very specific species and certain criteria. 00:28:06.538 --> 00:28:09.148 That was very different than the standard land rental. 00:28:09.388 --> 00:28:11.158 So not all things are black and white. 00:28:11.188 --> 00:28:12.088 They're going to look at. 00:28:12.418 --> 00:28:14.428 What services the taxpayer's providing. 00:28:15.118 --> 00:28:16.198 If there are services. 00:28:16.768 --> 00:28:19.018 What they are, if they're substantial. 00:28:19.618 --> 00:28:22.018 And how they relate to that industry. 00:28:22.318 --> 00:28:23.818 That's the other thing we're seeing, right? 00:28:23.818 --> 00:28:24.958 That the expectations. 00:28:25.348 --> 00:28:27.058 Related to a mobile home park. 00:28:27.598 --> 00:28:31.408 An office building or land rentals are going to be very different. 00:28:32.278 --> 00:28:34.258 So those are some of the key cases. 00:28:34.598 --> 00:28:36.128 And then pretty recently. 00:28:37.028 --> 00:28:42.488 We did have a court case that came up that related to short-term rentals. 00:28:43.028 --> 00:28:44.768 In somewhat of an unexpected way. 00:28:45.128 --> 00:28:47.588 This case was related to a yacht rental. 00:28:48.218 --> 00:28:50.288 But the big takeaway from this. 00:28:50.708 --> 00:28:52.718 And this was a Rogerson. 00:28:52.748 --> 00:28:54.958 V commissioner case this was in 2023. 00:28:55.018 --> 00:28:56.188 So this was very recent. 00:28:56.938 --> 00:29:00.388 And same kind of argument here as with short-term rentals, where 00:29:00.388 --> 00:29:03.308 they were arguing, it was going to stay passive or it was going to be 00:29:03.308 --> 00:29:05.108 non-passive based on the length of stay. 00:29:05.828 --> 00:29:08.828 And the key takeaway from this most recent case. 00:29:10.248 --> 00:29:15.408 Was that they hadn't had any guest stays by the end of that year. 00:29:16.068 --> 00:29:19.368 So the year when they put it in service and it might've been available to rent, 00:29:19.368 --> 00:29:23.118 which does make it in service, but no one had technically stayed in it yet. 00:29:23.868 --> 00:29:25.518 And so for the argument. 00:29:26.018 --> 00:29:28.388 Of a rental of real property. 00:29:28.418 --> 00:29:31.838 So like a boat with living facilities on it could qualify. 00:29:32.678 --> 00:29:35.828 If the average guest stay is seven days or less, that it 00:29:35.858 --> 00:29:37.418 can potentially be non-passive. 00:29:37.838 --> 00:29:39.878 That was the argument made by the taxpayer. 00:29:40.328 --> 00:29:43.748 And the court said, but you don't have any guests for us 00:29:43.748 --> 00:29:45.338 to average and amount of stay. 00:29:45.938 --> 00:29:49.268 We have no way to know if your first guest is going to stay 00:29:49.268 --> 00:29:51.458 for a hundred days or two days. 00:29:52.118 --> 00:29:55.358 So this very recent 20, 23 case. 00:29:55.898 --> 00:30:00.188 Really reinforced what a lot of us have been saying, which is, if you are going 00:30:00.188 --> 00:30:03.968 to put your short-term rental, In service before your end, you're going to try 00:30:03.968 --> 00:30:05.558 to do the short-term rental loophole. 00:30:06.038 --> 00:30:11.018 Make sure you have at least two different stays at fair market value. 00:30:11.348 --> 00:30:14.198 So that you can prove an average and you can prove an 00:30:14.198 --> 00:30:16.178 average of seven days or less. 00:30:16.838 --> 00:30:20.528 If you've put it in service, but don't have anyone stay in it yet. 00:30:20.888 --> 00:30:23.348 Then you cannot prove it is non-passive for the year. 00:30:23.378 --> 00:30:26.618 Even if it's in service, you can start, you know, depreciating it as soon as 00:30:26.618 --> 00:30:27.848 it's ready and available for rent. 00:30:27.878 --> 00:30:29.138 All of that still happens. 00:30:29.798 --> 00:30:32.708 But we can not meet the criteria to prove it is non passive. 00:30:33.098 --> 00:30:37.178 And this very recent court case kind of reaffirmed what a lot of us 00:30:37.178 --> 00:30:38.738 have been saying in the tax world. 00:30:39.238 --> 00:30:40.588 So that was a lot of information. 00:30:40.768 --> 00:30:41.878 Like I said, I am. 00:30:42.238 --> 00:30:43.438 I'm huge on court cases. 00:30:43.438 --> 00:30:46.918 And this was actually like my night, Friday night, I was up till three in 00:30:46.918 --> 00:30:49.858 the morning because I would find one case and then it would lead to another. 00:30:49.858 --> 00:30:53.188 Cause it would say, you know, this, this court referenced this other case. 00:30:53.188 --> 00:30:53.788 Well, okay. 00:30:53.788 --> 00:30:55.048 Now I'm going to go read that case. 00:30:55.468 --> 00:30:57.838 So that was my wild, Friday night was staying up late. 00:30:57.898 --> 00:30:59.968 Reading through pages and pages of court cases. 00:31:00.448 --> 00:31:02.218 But I find it super interesting. 00:31:02.698 --> 00:31:06.448 To me, this is the in between the lines that is really important to add context. 00:31:07.138 --> 00:31:09.418 Because there's so much of it depends. 00:31:09.718 --> 00:31:15.718 When it comes to tax scenarios and part of the difference between a tax preparer. 00:31:16.198 --> 00:31:17.818 And a tax strategist or planner. 00:31:18.328 --> 00:31:22.528 Is the ability to look at things like this and form a position. 00:31:23.308 --> 00:31:25.708 There's lots of things in tax that are not black and white. 00:31:26.248 --> 00:31:29.398 Where you as the taxpayer or your tax professional, who 00:31:29.428 --> 00:31:30.718 you pay to help with this? 00:31:31.138 --> 00:31:35.428 Need to say, we believe we can do this based on a, B and C, or 00:31:35.428 --> 00:31:39.328 we believe we can't or didn't, or shouldn't have because of AB and C. 00:31:40.058 --> 00:31:44.648 That's what makes someone a tax planner versus just a tax prepare is 00:31:44.648 --> 00:31:46.148 kind of that deeper understanding. 00:31:46.628 --> 00:31:46.958 So. 00:31:47.648 --> 00:31:49.988 I hope you guys have found this really helpful. 00:31:50.258 --> 00:31:53.288 And if you are someone who loves reading. 00:31:53.338 --> 00:31:54.478 Interesting court cases. 00:31:55.048 --> 00:31:56.188 As much as I do. 00:31:56.728 --> 00:32:00.718 I will go ahead and link to these cases and these show notes and 00:32:00.718 --> 00:32:03.178 these rev rulings, and you guys can check them out for yourselves. 00:32:03.518 --> 00:32:04.328 Read a little more. 00:32:04.688 --> 00:32:09.248 If you have any followup questions, feel free to join us in the Facebook group. 00:32:09.608 --> 00:32:13.148 There is one for tax professionals and one for real estate investors. 00:32:13.148 --> 00:32:15.128 I will link both below as well. 00:32:15.608 --> 00:32:19.658 And as always, if you guys have liked this episode or found 00:32:19.658 --> 00:32:21.548 value, please share the show. 00:32:21.548 --> 00:32:22.148 Review it. 00:32:22.538 --> 00:32:25.118 Leave it a good rating, whatever you'd like to do. 00:32:25.368 --> 00:32:27.108 And as always. 00:32:27.678 --> 00:32:31.908 I will talk to you guys next week and I hope you have a fantastic weekend.