Rudy Baker Business Case Study

Rudy Baker owned and operated Rudy’s Pools, a pool construction company in Massachusetts. Weather
conditions in Massachusetts are such that pool construction is a seasonal business. Ten years ago, Baker
established Rudy’s Farm, a sole proprietorship, to breed and raise horses during the off season of the
Massachusetts pool construction industry. Five years ago, Baker moved Rudy’s Farm to Florida and the
business did well. He also diversified Rudy’s Pools and established a division in Florida. The division was
known as Baker Farms and its purpose was to acquire horses to breed with Rudy’s Farm’s most
successful horses and establish a racing stable. Baker managed and trained the horses at both Rudy’s
Farm and Baker Farms. However, the only renumeration he received from Baker Farms was
reimbursement for his plane ticket to Florida. During racing season, Rudy spent a substantial amount of
time at the track, often working 8 hours a day only to return at night to solicit sales of his horses.
Four years ago, Rudy’s daughter Jessie moved to Florida and took over a troubled pool construction
company. Jessie had worked for Rudy’s Pools in Massachusetts for several years. Rudy became part
owner of this venture, but did not collect a salary despite the many hours he spent helping Jessie run
the business. The company became very profitable.
Although Rudy’s wife and other children continued to reside in Massachusetts 12 months a year, Rudy’s
business ventures kept him in Florida six months a year. To save travel money, Rudy bought a
condominium near the track where he trained and raced his horses. He bought the condominium to
use while he was in Florida on business. On their joint 2018 tax return, the Bakers claimed 100%
business usage of their Florida condominium. As such, they deducted depreciation on both the
condominium and all of its personal property. They also took a deduction for the meals consumed in
Florida as well as the mortgage interest, real estate taxes, insurance and utilities associated with the
condominium as lodging expenses.
Answer the following three questions:
1. Are the Bakers entitled to travel expenses for costs associated with their Florida condominium?
Answer in one sentence.
2. Justify your answer to question 1 by citing the Internal Revenue Code sections, regulations,
revenue rulings and cases you used to draw this conclusion. You must cite at least 3 cases.
3. Cite one case that might have led you to a different conclusion in question 1. Briefly describe
why you did not follow the findings of this case’s conclusion. For instance, if you answered
“NO” in question 1, then find a case where said ‘Yes’ and tell me what facts in our case made
you find differently.
Remember to include a bibliography at the end of this paper with proper citations for the material
used.