Reminder: No Profit Motive = No Deduction

In McElroy, TC Memo 2014-163, the court reminds us of the above maxim.

The taxpayer in this case invested in three partnerships, established to acquire cemetery sites for later contribution to qualified charitable organizations.  McElroy thought he could deduct losses for his investments in the three partnerships on the basis that his ownership interests in each were worthless as of the end of the years in which the partnerships operated, and that he therefore had abandoned them.  He argued he invested to derive a profit and in furtherance of a legislative intent to encourage charitable contributions.

But the court, in agreeing with IRS, found that the taxpayer lacked the requisite profit motive, and concluded that the partnerships were designed to generate tax benefits from the making of charitable contributions and not to make any profit independent of tax benefits.  Indeed, the partnerships were established not to realize any income or economic profit whatsoever!