That was the message delivered by a quartet of lawyers who Sept. 12 staged a series of seminars on fraud prevention and tax planning in the horse industry. The sessions, which were hosted by attorneys affiliated with the national firm of Chamberlain, Hrdlicka, White, Williams & Martin, were held at the Crowne Plaza Lexington-The Campbell House Hotel in Lexington.
Attorneys David D. Aughtry and Pamela E. Powers emphasized the importance of owners engaging in thorough tax planning, and using recent rulings and code changes to their benefit.
“It’s a big, big deal,” said Aughtry, who practices out of the firm’s Atlanta office. “It could mean 40 cents on the dollar.”
The “40 cents” reference is what owners could give up in taxes on their horse operations without proper planning and use of code revisions. Aughtry led a defense team that in May won a landmark case against the Internal Revenue Service, a legal action he said allows horse owners to claim deductions on losses for “activities that you enjoy … provided you have a genuine profit motive.”
But all the hassles of such a court trial could have been avoided by performing due diligence, such as selecting proper incorporating procedures, developing a documented business plan, and keeping detailed records.
“I tried and won cases for the government against horse owners,” said Aughtry, who worked as an attorney for the IRS from 1978-82. “Those that lost didn’t put time into the details nor had the fixation with minutia that is needed to persuade the court in their favor.”
Powers, who practices in the firm’s Houston office, distributed a detailed 13-page outline on updated information pertinent to tax planning for Thoroughbred owners. One new change in the tax code for 2007 allows for an additional 3% in deductions based on profits from the sale of foals.
“I am surprised how few people in the horse industry know about this,” she said, adding that owners need to consult trusted advisors such as accountants, attorneys, and financial planners.
Attorneys Daniel D. Pipitone and William H. Stout provided tips on sidestepping fraudulent traps. The two Houston-based attorneys were the lead litigators in the James McIngvale fraud lawsuit that was successfully settled out of court in the owner’s favor earlier this year.
“We were surprised by the lack of documentation,” said Stout, noting the industry’s all-too-common practice of doing business by verbal agreements. “People that we talked about throughout our investigation told us they didn’t do a lot of research coming into the industry.”
Before connecting with an agent, the attorneys suggested prospective owners should talk to past and present clients, and research the agent’s background with such organizations as the Thoroughbred Owners and Breeders Association.
After selecting an agent, a “candid conversation” about expectations of the business relationship should be conducted, and a written agreement should be executed that includes clauses on transparency issues such as dual agency, among other things.
The attorneys also suggested owners should do independent research on horses they are interested in buying and “trust your instincts.”
Most Popular Stories
- Tapiture Takes On Rebel Invaders and Old Foes
- Social Inclusion Spoils Honor Code's Return
- Study Links Cell Damage to Corticosteroids
- Iotapa Heads Tough Lineup in Santa Margarita
- Azeri: Don't Tell Sophia Faces Close Hatches
- Sign Runs Last in Return from Lengthy Layoff
- New Standards May be Imposed on NY Stewards
- Hall of Fame Jockeys to Compete at Pimlico
- Taptowne Draws Rail in Well-Matched Razorback
- U.A.E. to Supply Horses for Chinese Race Day