Country Crooners Sing the Blues
Ernie Neve, CPA
February 7, 2018
Country music embraces a long tradition of songs about sadness and ruin, heartbreak and pain. It just makes sense, then, that country music sometimes runs afoul of the tax system. Most famously, Willie Nelson found himself on the wrong side of a $16.7 million tax bill. And outlaw country icon David Allen Coe, who penned Take This Job and Shove It, drew three years probation and $980,000 in restitution for failing to report his income, which he insisted on taking in cash to hide from the IRS.
Joy Ford probably never expected she would become a part of that particular tradition. She got her start as a carnival dancer performing at state fairs. Her co-star Loretta Lynn inspired her to start singing, and she had several minor hits in the 1980s. She went on to operate the Bell Cove Club outside Nashville, where she showcased up-and-coming acts. But her eye for talent turned out to be far better than her eye for business.
Ford met with a producer to talk about a TV show, and met with a consultant who suggested converting the club into a seafood restaurant. But the show went nowhere and the consultant's advice went in one ear and out the other. She claimed losses of $210,298 for the years 2012-2014, and deducted them against income from trusts and a brokerage account. Business losses are deductible against outside income, of course, if you can show you're really trying to make money. But the IRS decided her business was just an expensive hobby, disallowed the losses, and the case ended up in court.
Judge Foley took just two pages to find that Ford wasn't really trying to make a profit. "She had no expertise in club ownership, maintained inadequate records, disregarded expert business advice, nonchalantly accepted Bell Cove's perpetual losses, and made no attempt to reduce expenses, increase revenue, or improve Bell Cove's overall performance." Not much to sing about, there!
But not all country musicians who take on the IRS wind up on the sad side. Remember Conway Twitty? (Who could forget a name like that? It sure beat Harold Lloyd Jenkins, the one he was born with!) In 1968, he rounded up 75 friends and associates to invest in a side venture called Twitty Burgers. Apparently, his fans found his vocal licks tastier than his burgers, and by 1971, all but one of the restaurants were shuttered. Twitty worried that the failure would hurt his reputation, so he repaid his investors out of his music income. Naturally, he deducted those repayments, totaling $96,492.
The critics at the IRS disallowed Twitty's repayments because they were related to the burger business, not the music business. So Twitty took the IRS to court, and the Tax Court ruled in his favor. Judge Irwin found that repaying the investors was an "ordinary and necessary" expense for "furthering his business as a country music artist and protecting his business reputation for integrity." (We're not sure how Twitty would have translated those happy results into a country song, however!)
Are you looking for happier music where your taxes are concerned? You'll need to do a little planning, and probably a little homework. But we can help you with that effort, and we promise you'll whistle a happy tune if you do. So call us when you're ready to save, and remember, we're here for your bandmates, too!