Profit Motive Standard Sinks Partnership Tax Deduction Claim

A couple who tried to deduct losses they incurred from their partnership’s foreign currency option are liable for income tax because that partnership lacked a clear profit motive, the US Tax Court said Wednesday.

Terry L. and Cheryl A. Wright each owned 50% of a stock holding company, Cyber Advice LLC, which reported a $3.16 million short-term capital loss on its 2002 partnership income return. The IRS responded by determining a $603,100 income tax deficiency and Section 6662(a) accuracy-related penalty against the couple, to whom the loss flowed from the partnership.

The Wrights are liable for the 2002 income tax ...