William S. Skeen and Alison Skeen v. Commissioner of Internal Revenue Service

This is an appeal from a Tax Court decision upholding the Commissioner of Internal Revenue’s disallowance of certain taxpayer deductions, assessment of additional interest, and levy of a negligence penalty. The Tax Court ruling below decided a consolidated case regarding a gold mining scheme entered into by appellants and others. It is reported as Patin v. Commissioner, 88 T.C. 1086 (1987). The relevant facts of the scheme are set out at length in that decision. The five taxpayer cases consolidated in the ruling below were selected by counsel and approved by the court to serve as test cases for resolving issues common to a much larger group of individuals who invested in the scheme. Patin, 88 T.C. at 1087-88 . All five cases were decided against the taxpayers, who have appealed the decision to various circuits. Taxpayers Skeen and his wife have appealed to this court.

The principal issue is whether the Tax Court erred in finding that the Skeens entered into the gold mining program without a primary profit motive apart from the expected tax benefits. In this circuit we have articulated the standard that “the ‘basic and dominant’ motive behind the taxpayer’s activities must be ‘to…