(Bloomberg) Former National Football League player Bill Romanowski can’t deduct costs of a horse-breeding operation, the U.S. Tax Court ruled, upholding a $4.7 million levy by the Internal Revenue Service.

Bill Romanowski

Romanowski and his wife, Julie, didn’t try to make a profit on horse-breeding activities in 2003 and 2004, and as a result, the expenses they incurred aren’t deductible, Judge Joseph Goeke in Washington said in Wednesday’s decision.

The couple’s involvement in a horse-breeding program “was almost entirely motivated by tax benefits available to them through such participation,” Goeke wrote.

Romanowski, 46, spent 16 seasons in the NFL as a linebacker from 1988 to 2003 and won two Super Bowl titles with both the San Francisco 49ers (1988-89) and Denver Broncos (1997-98). He appeared in 240 straight regular-season games before concussions ended his playing career.

The expenses incurred by the Romanowskis stemmed from an investment in a Kentucky-based horse-breeding business conducted by ClassicStar LLC, whose operators pleaded guilty in 2009 to conspiring to defraud the U.S. by running an illegal tax shelter.

Tax Penalties
Goeke also found that the Romanowskis aren’t liable for more than $940,000 in penalties related to inaccuracies in their returns because they relied in good faith on their tax advisers. Both the penalties and the back taxes accrued from 1998 through 2004, according to Goeke’s ruling.

Steve Katz, an attorney for the Romanowskis, didn’t immediately respond to a request for comment.

The Romanowskis learned of ClassicStar through Rodney Atherton, an attorney for Greenberg Traurig LLP, which represented the horse breeder at the time on certain tax matters, according to the tax court ruling.

The couple eventually retained the Greenberg firm and in December 2003 wrote a $300,000 check to ClassicStar as a deposit on what was planned as a $13 million investment in the breeding program, Goeke said.

Atherton, who is no longer affiliated with Greenberg, didn’t immediately respond to a request for comment about his role in the investment.

Lourdes Brezo Martinez, a spokeswoman for Greenberg, said in an e-mail that “neither the firm nor its attorneys were involved in this tax proceeding.” She said the firm didn’t “participate and were not found to have participated in any wrongdoing in this situation. We have long-ago resolved any claims between our firm and Mr. Romanowski.”

The Romanowskis leased mares owned by ClassicStar, which provided boarding and care for the horses and bred them to stallions. The couple “did not have significant interaction with their mares or foals and delegated essentially all the breeding work to ClassicStar,” Goeke wrote.

The Romanowskis “did not expect their (mostly hypothetical) foals to appreciate in value to the point where they would recognize a profit,” he said.

The case is Romanowski v. IRS, 10-15562, U.S. Tax Court, (Washington).