A Tax Court judge has decided that a retired Internal Revenue Service auditor's greyhound-breeding business does not qualify for business deductions and criticized the dogs' treatment.

Ralph Thomas Whitecavage, an auditor in the IRS's Yuma, Ariz., office for 21 years, retired in 2006. He worked full-time for the IRS, but also began breeding greyhounds in 1994 that would be sent to Florida, Oklahoma and New Mexico to train for races.

"Not all the greyhounds survived training," wrote Judge Michael Thornton in his opinion. "Petitioner 'lost' about 20 greyhounds because of bad training methods by the trainers in the racing kennels. The greyhounds that survived spent the rest of their racing lives on the track and generally did not return to petitioner. Instead, at the end of their racing lives the greyhounds generally would be 'petted out'; i.e., sent into an adoption program or to a veterinarian, presumably to be euthanized. Petitioner received no money for these dogs upon their retirement."

Whitecavage did receive a percentage of their winnings, but never realized a profit. He kept the dogs in crates in his garage before building a 1,000-square-foot kennel in 2002. Over 10 years, he raised about 88 greyhounds before he stopped in 2006.

Thornton had to decide whether during 2001, 2002 and 2003, Whitecavage engaged for profit in the breeding of greyhounds and whether he was liable for a 20 percent accuracy-related penalty for $14,521 understatement of tax for 2002.

Thornton wrote that the greyhound breeding was conducted in a "seemingly inhumane manner" and he said that Whitecavage did not establish that he engaged in the activity with the objective of making a profit. The judge also considered whether Whitecavage should be able to avoid an accuracy-related penalty if he had reasonable cause and acted in good faith.

"Petitioner has not shown (or even expressly claimed) that he had reasonable cause or acted in good faith with respect to his understatements of income tax," he wrote. "Any such defense appears especially problematic in the light of petitioner's employment as an IRS auditor."

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