State Bar of Wisconsin Return to wisbar.org Wisconsin Tax Appeals Commission


[WP]

STATE OF WISCONSIN

TAX APPEALS COMMISSION


MARGARET J. DYE

3033 Red Fox Circle

Colgate, WI 53017,

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8907

Madison, WI 53708 ,

Respondent.

DOCKET NO. 00-I-49

DECISION AND ORDER


DON M. MILLIS, CHAIRPERSON:

This matter came before the Commission for trial on February 20, 2001, in Waukesha. Both parties have submitted post-hearing briefs. Petitioner is represented by Whyte Hirschboeck Dudek, S.C., by Attorney James R. Lowe. The Department is represented by Attorney Sheree Robertson.

Based on the evidence received at trial, the submissions of the parties, and the record in this matter, the Commission finds, rules, and orders as follows:

FINDINGS OF FACT

1. Petitioner Margaret J. Dye owns a horseracing business as a sole proprietor. This horseracing business is operated by Mrs. Dye's husband, John Cianciolo. All actions of Mr. Cianciolo described herein are actions he took on behalf of Mrs. Dye in the furtherance of her horseracing business.

1995 Eldorado

2. In 1996, Mrs. Dye and Mr. Cianciolo had three vehicles at their disposal: a 1989 Cadillac Eldorado, a 1995 Jeep Cherokee, and a 1995 Cadillac Eldorado ("1995 Eldorado") that was leased by Mrs. Dye.

3. Mrs. Dye leased the 1995 Eldorado pursuant to a 24-month lease that commenced in June of 1995. At the commencement of the lease, the fair market value of the 1995 Eldorado was $37,765.

4. The 1995 Eldorado was used exclusively in 1996 for Mrs. Dye's horseracing business, logging more than 38,000 miles for trips (1) to racetracks in New York (13 trips for 25, 950 miles) and Illinois (2 trips for 470 miles), (2) to Illinois to check on horses or similar business purposes (17 trips for 3,994 miles), (3) to Florida (1 trip for 3,200 miles), and (4) to Kentucky horse sales (4 trips for 4,480 miles).

5. In 1996, Mrs. Dye and Mr. Cianciolo used a calendar on which they made a contemporaneous record of personal and business events (the "Calendar"). Included on the Calendar were the business trips that Mr. Cianciolo, or Mrs. Dye and Mr. Cianciolo, made with the 1995 Eldorado.

6. On her 1996 Wisconsin income tax return, Mrs. Dye deducted $6,930 in lease payments on the 1995 Eldorado; however, she did not add back to her gross income any inclusion income as required by Treasury Regulations.

1996 Business Expenses

7. On her 1996 Wisconsin income tax return, Mrs. Dye claimed the following amounts for "Other Expenses" on Part V of Schedule C:

Jockey and Entry Fees $ 9,858

Veterinarian Expenses 1,789

Trainer Fees 27,566

Transporting 1,696

Telephone 253

Miscellaneous 1,662

None of these amounts includes any expense for the purchase of a feed supplement known as VLM.

8. In 1996, Mrs. Dye incurred $26,950.05 in expenses properly deducted as trainer fees.

Purchase of Gelding in 1996

9. In June of 1996, Mr. Cianciolo paid $9,000 in cash to purchase a 2-year-old thoroughbred gelding from Peter Wood of Kankakee, Illinois. Mr. Cianciolo also contracted with Mr. Wood to train and board the gelding at his farm in Illinois. Mr. Cianciolo paid Mr. Wood $3,500 for this training and boarding. Following the purchase, Mr. Wood returned with the gelding to his farm for training.

10. At some point in the months that followed the return of the gelding to Mr. Wood's farm, the gelding developed a bowed tendon in its leg, dooming the horse's chance of ever racing.

11. Mr. Cianciolo then sold the gelding for slaughter on August 1, 1996 for $200 to a business located in Columbus, Wisconsin, called Steers Tack. Steers Tack is in the business of purchasing horses for slaughter and delivering them to a rendering plant.

12. On her 1996 Wisconsin income tax return, Mrs. Dye claimed an ordinary loss of $8,800 associated with the purchase and subsequent sale of this gelding.

Purchase of Gelding in 1997

13. On April 19, 1997, Mr. Cianciolo bought a 2-year-old thoroughbred gelding from Bob Boufh for $26,500 in cash.

14. Later that year, the gelding developed a bucked shin. This condition led to a catastrophic injury to the gelding's ankle that required the gelding to be destroyed.

15. Mr. Cianciolo then sold the gelding for slaughter on December 12, 1997 for $250 to Steers Tack.

16. On her 1997 Wisconsin income tax return, Mrs. Dye claimed an ordinary loss of $26,250 associated with the purchase and subsequent sale of this gelding.

Horseracing Business In General

17. It is a commonly accepted practice in the horseracing business for thoroughbred horses to be purchased with cash.

18. Thoroughbred horses are typically not named until shortly before they compete in their first race.

19. When a thoroughbred horse is destroyed, or sold in the anticipation that it will be destroyed, the seller typically destroys the horse's registration papers.

The Audit and Jurisdictional Facts

20. In the months prior to the issuance of the assessment in this matter, the Department's auditor met with Mr. Cianciolo, who represented Mrs. Dye in matters before the Department. In an attempt to substantiate certain Schedule C expenses claimed by Mrs. Dye in 1996, Mr. Cianciolo showed to the Department, among other things, the following documents:

A. Copies of cancelled checks ("Cancelled Checks") made payable to various vendors, totaling $25,239.05;

B. An Owner Statement ("Owner Statement") from The New York Racing Association that showed the expenses charged by the Association and winnings paid to Mrs. Dye for Criminal Command--a horse owned by Mrs. Dye--that raced at three New York tracks in 1996: Aqueduct Racecourse, Belmont Park, and Saratoga Race Course;

C. A handwritten receipt ("Boarding Receipt") from Peter Wood, seller of the gelding purchased in 1996, in the amount of $3,500 for training and boarding of the gelding purchased from Mr. Wood;

D. A handwritten receipt ("VLM Receipt") for the purchase of VLM for $4,050.

21. When considering the amounts Mrs. Dye claimed as "Other Expenses" under Part V of Schedule C, the Department accepted the amounts claimed for transporting, telephone, and miscellaneous, but made the following determinations:

A. Based on a review of the Owner Statement, determined that only $6,068.20 of the $9,858 claimed for jockey and entry fees was proper, but after adding the $3,500 expense shown on the Boarding Receipt--for a total of $9,568.20--decided not to disallow any of the $9,858 claimed;

B. Based on a review of the Cancelled Checks, determined that $1,789 of the $25,239.05 listed on the Cancelled Checks was for veterinarian fees and, therefore, allowed the $1,789 claimed for veterinarian fees;

C. Determined that the VLM Receipt was not adequate to substantiate any expense;

D. After determining that $1,789 of the $25,239.05 listed in the Cancelled Checks was for veterinarian fees, determined that the remaining amount--$23,450.05--is all that Mrs. Dye could substantiate for trainer fees;

E. Despite the fact that the amount the Department counted as trainer fees--$23,450.05--was $4,115.95 less than the amount claimed for trainer fees, the Department disallowed only $4,050 of the amount claimed for trainer fees.

22. Under the date of July 12, 1999, the Department issued an income tax assessment against Mrs. Dye in the amount of $5,073.41, plus $795.27 in interest, for the years 1996 and 1997.

23. The assessment was based on three adjustments:

A. The Department denied $6,930 Mrs. Dye claimed in 1996 as transportation expense for her payments on a 1995 Eldorado because, the Department concluded, Mrs. Dye had not adequately shown that the Cadillac was used exclusively in her business;

B. The Department reduced $4,050 from the trainer fees claimed on Part V of Schedule C as "Other Expenses" by Mrs. Dye in 1996 because, the Department concluded, this was the amount Mrs. Dye was claiming for the cost of VLM, and Mrs. Dye had not adequately substantiated this expense; and

C. The Department denied claimed losses of $8,800 in 1996 and $26,250 in 1997 because, the Department asserted, Mrs. Dye had failed to substantiate both the acquisition of the horses involved and their disposal.

24. Nowhere in the assessment did the Department indicate that it had made any determination with respect to the other expenses claimed on Part V of Schedule C for 1996, other than to deny a purported expense for VLM. Prior to the day of trial, Mrs. Dye had no notice of the determination of the Department with respect to jockey and entry fees or the allocation of the $3,500 from the Boarding Receipt to trainer fees.

25. Mrs. Dye filed a petition for redetermination objecting to the assessment. This petition for redetermination was denied by the Department. Mrs. Dye then filed a timely petition for review with the Commission.

Judicial Notice

26. The Commission takes judicial notice that the ZIP Code for Kankakee, Illinois, is 60901.(1)

27. The Commission takes judicial notice of the fact that a bowed tendon is a rupture of the sheath enclosing the tendon from a horse's knee to its fetlock joint.

28. The Commission takes judicial notice of the fact that a bucked shin is the inflammation of the shin, to which young horses are particularly susceptible.

CONCLUSIONS OF LAW

1. Mrs. Dye has substantiated (1) $6,930 in rental expenses in 1996 for lease payments on the 1995 Eldorado; (2) all but $615.95 of the trainer expenses claimed in 1996; and (3) losses of $8,800 in 1996 and $26,250 in 1997 relating to the purchase and sale of horses in these years.

2. Mrs. Dye's gross income for 1996 is increased by $378. Treas. Reg. §1.280F-7.

(2) ways:

OPINION

The issue presented in this case is wether Mrs. Dye has substantiated the expenses that were disallowed by the Department. Mrs. Dye has the burden of showing by substantial evidence that the Department is incorrect. Woller v. Dep't of Taxation,35 Wis. 2d 227,232(1967)

1995 Eldorado

The Department concedes that the lease payments for the 1995 Eldorado were made. The Department argues, however, that Mrs. Dye has not shown that the 1995 Eldorado was used in her horseracing business and that it was an ordinary and necessary business expense.

In order to qualify for a travel deduction, section 274(d) of the Internal Revenue Code requires substantiation "by adequate records or by sufficient evidence corroborating the taxpayer's own statement" of the expense in three ways.

1. Amount of the expense;

2. Time and place of travel; and

3. Business purpose of the expense.

In this case, there is no dispute of the amount of the expense. The Department argues that Mrs. Dye has failed to substantiate the time and place of the travel and the business purpose of the travel. Treasury Regulation section 1.274-5T(c)(1) provides that while a contemporaneous record is not required, a written record made at or near the time of the activity, supported by sufficient documentary evidence, has a high degree of probative value.

The Calendar maintained by Mrs. Dye and Mr. Cianciolo contemporaneously recorded the business travels that Mr. Cianciolo and/or Mrs. Dye undertook during 1996. Ten of the trips recorded on the Calendar (accounting for 22,000 miles or 58% of the miles at issue) involved travel to racetracks in New York where Criminal Command, one of Mrs. Dye's horses, raced. The date of each of these trips corresponds to Mrs. Dye's Owner Statement that was relied upon by the Department to verify most of Mrs. Dye's horseracing income and expenses for 1996. The Calendar and the Owner Statement support the testimony of Mrs. Dye and Mr. Cianciolo that these trips occurred and that the purpose was to be present when Criminal Command raced.

The Calendar also lists 21 trips to Illinois between June 1 and August 1 of 1996. According to a later-created summary sheet provided to the Department, 17 of these trips were to check on a horse owned by Mrs. Dye. This coincides with the boarding of the gelding purchased in 1996. The Boarding Receipt--also accepted by the Department to substantiate $3,500 in boarding and training expenses--indicates that a horse was trained and boarded at an Illinois horse farm during this period. Another receipt for the sale of the gelding for processing, following the development of a bowed tendon, is dated August 1. While the Calendar shows additional trips to Illinois after August 1, the frequency is significantly reduced. The Calendar and the Boarding Receipt corroborate both the summary sheet provided to the Department and the testimony of Mrs. Dye and Mr. Cianciolo that these trips to Illinois occurred for the purpose of checking on the gelding.

The Calendar also contains records of the remaining business trips about which Mr. Cianciolo and Mrs. Dye testified. While there is no separate documentation of the time, place, and business purpose of the remaining trips (other than the contemporaneously created Calendar), the Calendar is supported by the credible testimony of Mrs. Dye and Mr. Cianciolo.

The Department asserts that during the audit and during consideration of Mrs. Dye's petition for redetermination, Mr. Cianciolo did not provide much of the documentation and information that was offered at trial. As the Department knows well, the Commission reviews the facts and circumstances de novo. The Commission does not sit in judgment of the Department's action on the petition for redetermination based on the information supplied by the taxpayer. Rather, the taxpayer is afforded the opportunity to create a record with no regard to that which was submitted to the Department. In this case, Mrs. Dye was not represented by counsel but by Mr. Cianciolo in her dealings with the Department. While Mr. Cianciolo may be very skilled in the vocation of thoroughbred horseracing, he is unsophisticated when it comes to the requirements of the income tax law and accounting practices. Moreover, Mr. Cianciolo is not very proficient in the English language and, therefore, is not an effective communicator. It comes as no surprise that he was not able to marshal the substantiation documentation as well as Mrs. Dye's counsel. Moreover, nothing in Mr. Cianciolo's representation before the Department impeaches the credibility of his testimony.

The Department also complains that non-business entries are listed on the Calendar, suggesting that this may mean the 1995 Eldorado was used for purposes other than for business. Mrs. Dye and Mr. Cianciolo never represented the Calendar as a log for the 1995 Eldorado. Rather, the Calendar contained a record of all of their travels, business and personal, and from this record they were able to substantiate their business travel. We find it immaterial that non-business entries were recorded on the Calendar.

The Department also argues that Mrs. Dye has not substantiated that the 1995 Eldorado was used exclusively in business. The uncontradicted testimony of Mr. Cianciolo and Mrs. Dye that the 1995 Eldorado was used only for business purposes was credible and consistent with the aforementioned documentation of the business purpose of trips representing most of the trips. Moreover, Mrs. Dye and Mr. Cianciolo had two other vehicles at their disposal during 1996 with which they could make non-business trips. The Department points out that the lease agreement signed by Mrs. Dye has two boxes under "Primary Use." The box for "Personal, Family, Household, or Agricultural" use is checked. The box for "Business" use is not checked. We do not find this fact material or persuasive. Mrs. Dye's understanding of the term "business" is much more limited than that contemplated by the tax laws or as that term is used in common parlance. It appears that Mrs. Dye's understanding of a business is that of a brick-and-mortar retail, commercial or manufacturing concern. While it appears she believed her horseracing endeavor was a for-profit enterprise, it fell outside of her concept of a business. Given Mrs. Dye's limited understanding of the term "business," we cannot infer from the "Primary Use" box that the 1995 Eldorado was used for anything other than business purposes.

The Department points out that because the 1995 Eldorado was a leased passenger vehicle, Treasury Regulations require Mrs. Dye to add back an inclusion amount to her gross income. Treas. Reg. § 1.280F-7. The Commission concludes that Mrs. Dye should have added back $378 to her gross income in 1996. This is based on the commencement of the lease in 1995, a fair market value of $37,765, the Commission's conclusion that the 1995 Eldorado was used 100 percent in business, and that 1996 was the second year of the lease. See, Rev. Proc. 96-25. The Commission will order modification of the Department's action on the petition for determination with respect to 1996 by adding back $378 in income.(3)

1996 Business Expenses

On her 1996 Wisconsin income tax return, Mrs. Dye claimed deductions as "Other Expenses" in Part V of Schedule C in the following amounts:

Jockey and Entry Fees $ 9,858

Veterinarian Expenses 1,789

Trainer Fees 27,566

Transporting 1,696

Telephone 253

Miscellaneous 1,662

The Department's action during its audit of these expenses was not the model of clarity and accuracy. The Department accepted the transporting, telephone, and miscellaneous expenses. The Department reviewed the Owner Statement for Criminal Command and determined that only $6,068.20 listed on that statement was properly deductible in 1996. However, the Department added $3,500 from the Boarding Receipt to the $6,068.20, for a total of $9,568.20. Since this amount was close to the $9,858 claimed for jockey and entry fees, the Department allowed the expense and made no mention of this discrepancy in its assessment.

The Department next determined that of the $25,239.05 total of the Cancelled Checks, $1,789 was attributable to veterinarian fees. Subtracting the $1,789 from the $25,239.05 sum of the Cancelled Checks left $23,450.05 for trainer fees. This amount is $4,115.95 less than the $27,566 claimed for trainer fees. The Department did not accept the $4,050 receipt for VLM. In its assessment, the Department simply noted that it would not accept the $4,050 expense for VLM, and ignored the relatively minor discrepancies in jockey and entry fees and trainer fees.

Notwithstanding the fact that the VLM Receipt was presented to the Department, it is apparent that Mrs. Dye did not claim any deduction for VLM. More importantly, neither Mrs. Dye nor her counsel were aware until the day of trial that the Department had any question about the $9,858 claimed in jockey and entry fees or that the Department had counted $3,500 from the Boarding Receipt for training as part of trainer fees. The Department disputes this in its brief, but nothing in the record supports this claim. In fact, the assessment itself refers only to the disallowance of $4,050 for VLM under trainer fees, and is silent as to any of the other Part V claimed expenses. Going into trial, Mrs. Dye had no reasonable expectation that jockey and entry fees were ever at issue or that the $3,500 from the Boarding Receipt for training had been counted by the Department as part of the expenses for jockey and training fees. This is supported by the fact that Mrs. Dye did not even offer the only exhibit relating to the jockey and entry fees--the Owner Statement--into evidence. The Department offered this exhibit. Had Mrs. Dye been aware of this, she may have brought to trial additional documentation concerning the jockey and entry fees. We, therefore, will not consider any of the Department's action with respect to the jockey and entry fee expenses, and will permit the $3,500 from the Boarding Receipt to be counted as trainer fees expense.

We emphasize that this holding is not based solely on the very narrow explanation provided in the assessment. Rather, the holding is based on the peculiar facts and circumstances of this case in which the taxpayer and her counsel had no reasonable expectation that other expenses, in this case jockey and entry fees, were also at issue. Had the Department made it clear to Mrs. Dye in advance of trial that it had reviewed jockey and entry fees and accepted this expense only by counting the $3,500 from the Boarding Receipt for trainer fees, we would not have found for Mrs. Dye on this point.(4)

Mrs. Dye has substantiated $26,950 in trainer expenses: (1) $3,500 from the Boarding Receipt, plus (2) $23,450 from the Cancelled Checks (less the $1,789 for veterinarian fees). This amount is $615.95 short of the amount claimed on Mrs. Dye's return. Thus, we will order modification of the assessment to disallow $615.95 of expenses claimed in Part V of Schedule C.

Ordinary Losses Attributed to Purchase and Sale of Geldings

Mrs. Dye has substantiated the purchase of each gelding with a handwritten receipt and the eyewitness testimony of an unrelated third party. Moreover, the uncontradicted qualified testimony received at trial indicates that the use of cash in the purchase of thoroughbred horses is common and that, upon sale for destruction, the papers associated with such horses are commonly burned or otherwise destroyed.(5) Mrs. Dye has also substantiated the sale of these horses with receipts from the company that buys and sells horses to rendering plants.

The Department challenges these transactions on several fronts. The Department points out that the receipts for the geldings did not contain: (1) a physical description of the horse, its name or bloodlines; (2) terms and conditions of the sale; (3) a provision concerning the horse's health; (4) information about the seller; and (5) terms concerning compensation in the event the horse is unhealthy or defective. The Department, however, has not shown that such terms and information are typically included in receipts used in this trade or any trade, for that matter. The uncontradicted testimony at trial is that thoroughbred horses are not named until just before they race and that a horse's papers are destroyed when the horse is destroyed. Moreover, it could be that there were no such terms in this transaction. Perhaps Mr. Cianciolo bought horses for Mrs. Dye based on his physical inspection of the horse--and in the case of one horse, based on an oral appraisal--and was willing, on Mrs. Dye's behalf, to assume the risk of loss if there was a problem with the horse.

The Department complains that Mrs. Dye has not shown that the horses were insured for business purposes. While this fact would have some probative value, it does not determine whether the transaction took place.

The Department complains that there is little information known about either seller. Rarely, if ever, in substantiation cases before the Commission has there been an issue as to the identity of the seller of a business asset. Mrs. Dye produced signed receipts and has eyewitnesses to the transactions. What would it matter if these sellers were established business people or shadowy characters?

The Department argues that the Commission should not believe that cash was paid for horses because Mrs. Dye could not show that the cash came from a checking account or savings account. The record does not contain Mrs. Dye's bank statements, so the Commission cannot determine whether Mrs. Dye had the funds to finance these purchases. While this information might have probative value, the failure to include this information is not fatal to Mrs. Dye's case. We also note that on her returns for 1996 and 1997, Mrs. Dye reported taxable distributions from one or more individual retirement accounts of $20,000 and $50,000, respectively, and gross receipts of $48,700 and $21,000, respectively. Thus, it appears there was sufficient income in those years alone, even ignoring other sources such as cash accumulated from prior years, to finance these purchases.

The Department argues that Mr. Cianciolo contradicted his own testimony that Mrs. Dye took the winnings in cash when he later testified that winnings were paid in check. The Commission found no contradiction in Mr. Cianciolo's testimony. We construed his initial testimony to be that he and Mrs. Dye convert her prize checks to cash, much of which is kept at their residence.

The Department next takes issue with the apparent discrepancies on the receipt for the sale of the gelding in 1996 and the wording in the Boarding Receipt. The handwritten receipt for sale of the gelding in 1996 provides:

6-1-96

2 year old thoroughbred gelding sold to

John Cianciolo

$9000.00

Paid in cash

/s/ Pete Wood

The Boarding Receipt provides:

Pebble Bean Farm

Kean Key, Il 60901

815-939-9784

Board & Training

5-10-96)

6-1-96) $3500.00

7-1-96)

8-1-96)

Pd in cash /s/ Pete Wood

The Department argues that the Boarding Receipt does not support Mrs. Dye's contention that she purchased a horse for $9,000 and boarded the horse in "Kean Key," Illinois. The Boarding Receipt, in conjunction with the other evidence in the record, makes a compelling and credible case for Mrs. Dye. Both Mr. Cianciolo and the credible and disinterested third party who witnessed the purchase of the gelding in 1996 testified that a woman accompanying the seller prepared these receipts.(6) Moreover, the disinterested witness testified that she witnessed Mr. Cianciolo agree with the seller to have the gelding boarded at the seller's farm for $3,500. Finally, the Department initially accepted the Boarding Receipt as proof of a valid expense.

The Department also raises the discrepancy between the purchase date of June 1, 1996, and the first date listed on the Boarding Receipt of May 10, 1996. Given the skill of the person preparing the receipt (see infra note 6), it is not surprising that such a mistake was made. Again, the testimony of the disinterested witness to this sale is credible and makes it clear that the seller agreed to board the horse bought in June of 1996 and, in fact, took the horse back with him when the sale was completed.

The Department also questions the validity of the receipt for the sale of the horses to Steers Tack. The Department asserts that it is questionable that a business located in Columbus, Wisconsin, would arrange to purchase a horse in Illinois to be slaughtered in Illinois. However, the Department does not provide any reason or evidence to support this assertion. The Department also questions the failure of Mrs. Dye to call a witness from Steers Tack. Typically, taxpayers in substantiation cases do not call witnesses from vendors, especially when in this case there is a receipt printed on a company form. Moreover, what value would a witness from Steers Tack add? Such a witness was certainly not present at the purchase of either horse. Steers Tack was not provided with papers. The witness might testify that a horse was picked up at the farm of the seller, but the Department has already argued that there is no evidence the horse boarded at that farm was the same horse that was purchased in June of 1996.

With respect to the purchase of the horse in April 1997, for $26,500, the Department points out that the witness to this sale, who also appraised the horse for Mr. Cianciolo, wrote in two letters that the sale occurred on April 19, 1997. However, Form 4797 attached to Mrs. Dye's 1997 Wisconsin income tax return indicates that the horse was purchased on April 7, 1997. This discrepancy is insignificant, especially considering the credible testimony of the witness to this sale, which included his testimony as to the purchase price.

The Department also argues that there was no appraisal report with respect to the purchase of the gelding in April of 1997. We do not see this as a defect. Mr. Cianciolo obviously wanted the opinion of someone he respected before spending $26,500 for a horse. Paying for a written report was unnecessary if an oral appraisal provided Mr. Cianciolo with the assurance he was looking for.

The Department argues that Mrs. Dye failed to show that the losses claimed exceeded her adjusted basis in each horse. In each case, the horse purchase and loss occurred only a few months apart and within the same tax year. Mrs. Dye claimed no depreciation. There is no reason to believe that the adjusted basis of either horse is different from the purchase price, and the Department has not suggested any reason why it might be different.

The Department also argues that the Commission should not accept taxpayer testimony at face value--even where uncontradicted--if it is improbable, unreasonable or questionable. To the contrary, the Commission finds the testimony offered by Mrs. Dye to be probable, reasonable, and not questionable. While the substantiation certainly could have been more complete, based on the evidence offered at trial, the documentation was consistent with the practice in the thoroughbred horseracing industry, and it was supported by credible testimony by disinterested witnesses. To make the inferences suggested by the Department would be improbable, unreasonable, and questionable.

Mr. Cianciolo's Credibility

The Department devotes three full pages of its brief to challenge Mr. Cianciolo's credibility. To the contrary, the Commission found Mr. Cianciolo very credible. However, because he speaks with a heavy Italian accent, he is sometimes not easy to understand. Moreover, it is clear that he is not particularly fluent in English. At trial, it was evident that he did not always fully understand the questions that were asked of him. In addition, Mr. Cianciolo appears to harbor a distrust of the taxing authorities. The Commission can understand why the Department did not trust many of Mr. Cianciolo's representations. What the Commission found to be Mr. Cianciolo's lack of prowess with the English language, the Department may have interpreted as lack of candor or inconsistency. Nevertheless, the Commission found Mr. Cianciolo's testimony to be very credible. Every apparent inconsistency was or can easily be explained. What's most important, however, is that the thrust of Mr. Cianciolo's testimony was confirmed both by the record and disinterested witnesses.

Therefore,

IT IS ORDERED

That the Department's action on Mrs. Dye's petition for redetermination is modified as ordered below and, as modified, is affirmed:

(A) The disallowance of $6,930 in 1996 for lease payments on the 1995 Eldorado as rental expenses is reversed;

(B) The $4,050 reduction of the amounts claimed in 1996 for trainer fees is modified to a reduction of $615.95;

(C) Gross income for 1996 is increased by $378; and

(D) The disallowance of the losses of $8,800 in 1996 and $26,250 in 1997, both associated with the purchase and sale of horses in those years, is reversed.

Dated at Madison, Wisconsin, this 26th day of March, 2002.

WISCONSIN TAX APPEALS COMMISSION

Don M. Millis, Chairperson

Thomas M. Boykoff, Commissioner

Richard F. Raemisch, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

1 For relevance, see supra note 6.

2 Section 274(d) contains a fourth element that does not apply to travel expenses.

3 We cannot order inclusion amounts with respect to the two other years involved in the lease: 1995 and 1997. Tax year 1995 is not before the Commission. The record does not contain sufficient information to calculate an inclusion amount for 1997. Moreover, it is not even clear whether the 1995 Eldorado was used in 1997 for business.

4 In contrast to the way the Department handled jockey and entry fees, the record makes it clear that the Department deducted $1,789 veterinarian fees from the $25,239.05 sum of Cancelled Checks and that Mrs. Dye had adequate notice of this fact. The Department's version of the Cancelled Checks exhibit--which was offered into evidence by the Department--highlights those veterinarian expenses, indicates that the sum of the checks is to be reduced by $1,789, and carries the notation: "vet = 1789". At the very least, Mrs. Dye was put on notice as to the Department's position on these expenses when the Department exchanged its exhibits at trial.

5 The Department has routinely offered expert testimony to support its position. In this case, when the Department offered no testimony to counter that offered by Mrs. Dye, Mr. Cianciolo, and two disinterested parties familiar with industry practice, it did so at its own peril.

6 There is no such place in Illinois with the name Kean Key. However, the ZIP Code indicated on the Boarding Receipt ­ 60901 is the ZIP Code for Kankakee, Illinois. All this discrepancy means is that the woman preparing the Boarding Receipt had difficulty spelling "Kankakee." The Department is hardly in a position to challenge the validity of the Boarding Receipt, since it accepted this receipt as proof that Mrs. Dye paid $3,500 in boarding expenses.