When something sounds too good to be true, it usually is, especially if the promised benefits include a substantial tax break. On October 26, in federal district court in Utah, David Plummer, Spencer Plummer, and Terry Green entered guilty pleas on a charge of conspiracy to defraud the United States. The charge arose from a fraudulent tax shelter scheme called the "Mare Lease Program" that was marketed through ClassicStar LLC.
Tax deductions based on supposed losses generated by the leasing program were used by ClassicStar investors to reduce or eliminate taxes on other income. Some $500 million in fraudulent deductions allegedly bilked the government out of $200 million in taxes. The guilty pleas wrap up one part of the ClassicStar confusion, but others remain, including bankruptcy proceedings and more than two dozen civil lawsuits filed in six states.
More problematic for everyone not directly involved is that the ClassicStar affair reinforces two persistent stereotypes that make surviving in the horse business even more difficult. Common perceptions are, first, that everyone who owns horses is wealthy and on the prowl for a tax shelter, legitimate or otherwise, and, second, that all tax deductions generated by horse activities are shady. The former makes the horse industry fair game for state and federal legislators who are looking for people with deep pockets to plug budget holes. The latter makes it far more difficult for individuals in the horse business to claim legitimate tax deductions in the face of an IRS audit.
Neither stereotype is accurate.
According to the American Horse Council’s economic survey, 34% of horse owners have annual household incomes less than $50,000, and almost half of all horse owners have annual incomes in the $25,000-$75,000 range. These owners are the backbone of the industry, and certainly are not the same people who ran up $500 million in fraudulent tax deductions by investing serious money with ClassicStar.
Nor are all horse activities merely fronts for generating bogus tax deductions. If a horse operation satisfies the Internal Revenue Service tests for a business, the owner should be entitled to the same panoply of tax deductions enjoyed by non-equine businesses. Horse owners and breeders are not inherently dishonest, and any stigma resulting from a few bad apples should not be part of the taxation equation.
The federal government certainly has a legitimate interest in investigating and prosecuting tax evasion. By the same token, however, the government and the IRS must avoid painting the entire horse industry with a brush tainted by the ClassicStar fiasco. Surviving in the horse business is tough enough as it is.
UPDATE: The Tennessee Walking Horse controversy continues. A few weeks ago the Kentucky Horse Racing Commission decided to require some assurances that Tennessee Walking Horses are not being abused in the show ring as a prerequisite to state breeders fund payouts. On the heels of that decision, the Alltech FEI World Equestrian Games board of directors did an about-face and barred the Tennessee Walking Horse Breeders and Exhibitors Association from participation in the Equine Village. Instead, the breed will be represented at the Games by the National Walking Horse Association, which promotes showing without any gait enhancement devices or training methods. The Tennessee Walking Horse Breeders and Exhibitors initially were approved for Equine Village participation and demonstrations a year ago. At that time, according to press reports, the organization acceded to a WEG request and promised not to bring any horses which had been "sored" or had gait-enhancing devices such as padded shoes or chains around their front pasterns.