The $6.8 Million Loss That Vanished, and a $563,539 Tax Bill

Andrew B. West put no money into a commodities trading partnership. Just his time. His partner, Oscar Leo Quintanilla, put in all the capital. When the trading accounts lost $11.3 million, West claimed a $6.8 million loss in an amended Tax Court petition, enough to wipe out his whole tax bill. The IRS disallowed the loss and sent a bill of its own: $469,658 in tax plus $93,881 in penalties. The Tax Court later held his basis was zero. This is West v. Commissioner, T.C. Memo. 2026-105.

The one idea to carry out of this story: you cannot deduct a loss from a partnership you never paid into. Basis is what you have put in, money or property, and West had put in nothing. When your records are a mess, the court will not sort them out for you. If you are a partner in a business you did not fund, or your deductions rest on spreadsheets, this is your case.

Who was Andrew West?

West lived in Texas and worked for Oscar Leo Quintanilla and his entities from August 2010. Quintanilla owned and operated businesses in oil and gas, cattle, and commercial and residential real estate. West owned an interest in several of those businesses and served as chief executive officer and president of several of them. His employment agreement paid him a salary, benefits, and an “Operating Bonus” equal to 6% of the aggregate profits of the Quintanilla businesses, which West called his “entitlements.” As part of the job he began managing Quintanilla’s stock trading accounts, and during the years he managed them, those accounts had several years of trading profits.

The partnership: his time, Quintanilla’s money

On January 1, 2014, West and Quintanilla formed a commodities trading partnership, signing three documents: a Commodity Trading Allocation Agreement, a Secured Promissory Note, and an All-Assets Security Agreement. Quintanilla contributed the commodities trading accounts, all the capital. West contributed his work. He contributed no capital at any time. Each December 31 was a settlement date: Quintanilla would pay West 50% of any profits, and West became liable to Quintanilla for 50% of any losses up to $5 million. His share of the losses was automatically deemed borrowed from Quintanilla under the note, which had a maximum loan amount of $5 million and was secured by all of West’s assets.

Here is what the trading accounts did:

One detail worth knowing: Quintanilla claimed the entire 2014 loss on his own 2014 tax return, and the IRS did not disallow it. The partnership terminated on February 26, 2016, the same day Quintanilla ended West’s employment and effectively ended the joint venture.

The $6.8 million claim

West filed an amended petition in the Tax Court claiming an ordinary loss of $6.8 million for 2016, carried back to 2015, which would have eliminated the deficiencies the IRS had determined for both years. He had tried a version of this before. On October 9, 2018, he filed an amended 2014 return claiming a refund from a loss of $6,894,774 for “Hedging, Futures Trading.” In February 2021 he sued for that refund in federal district court in Texas. After the United States moved for summary judgment, arguing he was not entitled to claim any loss for 2014, the parties voluntarily dismissed the case in April 2023.

The falling-out

Quintanilla decided in January 2016 to terminate West’s employment. Extensive litigation followed, starting in 2016, when West sued Quintanilla in state court in Bexar County, Texas, over slander-of-title and fraudulent-lien claims stemming from the 2014 loss and a 2015 asset sale. On December 8, 2021, the Texas court found West liable to Quintanilla for $5,878,127 as of February 26, 2016. West has not paid any of it.

The 2015 asset sale is part of the same story. On March 1, 2015, West sold assets to Quintanilla for a stated price of around $4.5 million. Instead of paying West directly, Quintanilla paid West’s creditors, including his former wife Carey West, to whom West owed $2.2 million plus interest under a post-nuptial promissory note.

The returns, and the audit

West filed his 2015 return in October 2016 and his 2016 return in October 2017. For 2015 he reported about $1.5 million of gross income and under $1.4 million of expenses across three Schedules C, and total tax of $689,666. For 2016 he reported $70,000 of gross income and $270,347 of expenses, and total tax of $33,836. The three Schedules C covered management services, MPC Equipment LLC, and ABW Equipment Rentals LLC. The court found that income and deductions were not consistently allocated to the right Schedules C, and that West kept poorly organized records and intermingled his personal and business spending.

One of his businesses, MPC Equipment, had bought a house on Bristol Green in San Antonio to fix up and lease out or sell. The claimed costs included more than $100,000 paid to designer Erin Shirah, $77,000 billed by a Quintanilla business, and almost $170,000 for “repairs and upgrades.” The court found those were capital improvements, not incidental repairs.

The IRS examined the returns. A bank deposits analysis of West’s three Jefferson Bank accounts found $162,091 in unreported taxable deposits in 2015. The examination of his deductions disallowed nearly $1 million across 16 categories for 2015 and 2016. Revenue Agent Carmona recommended accuracy-related penalties, with a substantial understatement of tax as the primary position and negligence as the alternative, and her supervisor approved. The Notice of Deficiency arrived July 10, 2019:

Combined, the bill was $563,539 before interest.

The Porsche and the $50,000 check

West disputed the bank deposits analysis on two items, and both are worth telling in full because they show how the case was actually fought.

First, the Porsche. West’s bank statements showed he wrote a check for $115,870.52 on August 14, 2015, and a deposit of the same amount on August 19, 2015. The deposit slip bore the notation: “Leo & Ptnrs reimb for ck to Porsche of S[an] A[ntonio] for Conner’s Cayman.” In plain terms, West had bought a Porsche Cayman for Quintanilla’s son Conner, and Quintanilla’s businesses reimbursed him. The court agreed the check and the deposit offset each other, so the deposit was not taxable gain. But it did West no good: on audit, the IRS had already reached the same conclusion and placed that item in the “Non-Taxable” column of its analysis. It supported no correction.

Second, the $50,000. At trial West testified: “There’s a check in somewhere in all of our mess that is a reimbursement of overpayment to Waterwell on one of my bonuses.” The check he pointed to was for $50,000 payable to Water Well Services, but it was marked “For Loan pmt,” not a refund, and the court could find no deposit from Water Well anywhere in the bank records. West proved no $50,000 error. The $162,091 stood.

The road to trial

The case was continued five times, from sessions in January 2021, September 2021, October 2022, January 2023, and December 2023. At a calendar call on December 11, 2023, West told the court he needed to hire an attorney and expected “to have my house sold in the next 30 days. As soon as I have my house sold, I can hire a good lawyer.” The court observed that “you’ve had over a year to get an attorney.” The case finally went to trial on October 1, 2024, more than five years after West filed his petition.

After trial, West attached more than 200 pages of documents to each of his two briefs that had never been admitted into evidence, including an unsigned and undated “Post-trial Affidavit of CPA Jennifer Flume.” The court would not rely on any of it. The judge had warned him at the close of trial that the facts in his brief had to be supported by the evidence given that day. West also complained he had been cut off from testifying about each deduction. The court noted it was West himself who had ended his witness’s testimony, saying “I don’t want to sit here all day,” and that five continuances had given him an extra three and a half years to prepare.

The spreadsheets

West attached eight spreadsheets to his opening brief to prove his disputed Schedule C deductions. The court found four problems with them.

First, he submitted no spreadsheets at all for eight categories of deductions the notice had adjusted, including $99,879 of insurance on Schedule C-1 for 2015, $37,592 of office expenses, and $65,023 of 2016 travel. Those adjustments were sustained without further consideration.

Second, one spreadsheet was moot. It claimed $74,718 of professional fees for 2016, but the notice had allowed $131,730 for that same category, a better deal than his own numbers. The court wrote: “We will not disturb the IRS’s bigger deduction.”

Third, the spreadsheets did not match the returns. Schedule C-1 for 2015 claimed $71,179 of travel on the return but $149,531 on the spreadsheet. Schedule C-2 claimed no travel at all on the return but $46,324 on the spreadsheet. Professional fees on Schedule C-1 went from $169,084 on the return to $227,847 on the spreadsheet. These were new claims made seven years after the returns were filed, and the court said that gap prompts the question why, if these were real deductible expenses, they were not claimed originally.

Fourth, the invoices. Four of the seven spreadsheets cited no invoice page numbers at all, making it virtually impossible to find the invoices in the record. Most of the invoices were prepared from the same template and in the same format, written by Quintanilla personnel at West’s direction. One invoice even carried the same number as the check that paid it, 1173. The court wrote: “We do not sense fraud in this process.” But invoices written at the taxpayer’s own direction do not carry the weight of invoices issued by a third-party payee, and the Commissioner’s point stood: a check from West to an entity he partly owned, with an invoice from a related entity, and no third-party record of how the money was actually used.

Commissions: Rolexes and antique cars

On his 2015 Schedule C-1, West claimed a $147,500 deduction for commissions and fees. The IRS disallowed it in full. His spreadsheet claimed $89,625 in commissions. The court allowed none of it.

Three entries showed $60,000 paid to “Joseph Michael” in checks of $25,000, $20,000, and $15,000. The court found it more likely that the money was paid as an investment than as commissions. One entry showed a $23,000 wire to Burdeen Young & Company on December 21, 2015. The record also held invoices from B. Young & Company listing a white gold Rolex GMT with factory diamonds for $52,500 and a platinum Rolex Daytona for $47,500, a total of $100,000, plus a second Daytona for $33,000. The court found it more likely that the $23,000 wire paid for a watch than for commissions.

The remaining entries were no better: $2,000 to Emur Kast and $3,000 to Tony Jones, both marked “Antique cars,” and $1,000 to Utopia Ranch Rodeo. None of the expenses listed as commissions was deductible.

Travel: private jets, no names, no purpose

The spreadsheets claimed $195,855 in 2015 travel: $149,531 on Schedule C-1 and $46,324 on Schedule C-2. The flights were on private airplanes and a helicopter, billed by BL Aviation ($158,792 in total), QMC Aviation ($26,151), and Q2BW ($9,633), plus $1,279 to a driver, Todd Weems.

Every invoice was billed to “Brad West,” not to any business. No invoice gave the name of any traveler, and no invoice stated the purpose of any trip. One entry read simply “08/23/2014-08/24/2014 Trip” with no location. Some invoices listed “Pilot Incidental” charges with no pilot named. Two invoices were marked as split, “1/2 to Leo Quintanilla 1/2 Brad West” and “Split between Leo and Brad,” but the full amounts appeared on West’s spreadsheet.

Worse, the trip request forms contradicted the business story. One form for a $4,536.32 flight stated “PURPOSE: PERSONAL.” Another, for $6,851.79, stated “PURPOSE: PERSONAL” and noted “Brad doctor appointment.” Two more forms stated the purpose was business and gave the business reason as “Sunday gun shoot” and “Brad eye doctor.” West gave the court no travel log, calendar, or flight log showing the business purpose of any trip.

Travel is subject to the strict substantiation rules of section 274(d), which require the amount, the time and place, and the business purpose, corroborated by records. The Cohan rule, which sometimes lets a court estimate an expense that was clearly paid, does not apply to travel. And most of the money went to West’s own entities, BL Aviation and Q2BW. The court’s line: “One could say that he has proved he took money out of his left pocket and put it in his right pocket, but he has not shown that he made a deductible expenditure from his right pocket.” No travel beyond what the notice allowed was substantiated.

Professional fees: $381,271 claimed, $189,240 allowed

Across four spreadsheets, West claimed $381,271 in legal and professional fees, against $234,059 reported on the returns and $139,135 allowed in the notice. In the table, the notice is the IRS’s Notice of Deficiency, and “claimed” is what West’s spreadsheets argued for. The court’s own figures tell the story:

The biggest payee was Erin Shirah, who received $108,500 over the two years for interior design work at 43 Bristol Green. Those were capital improvements, not deductible fees. Ford Murray was a divorce attorney, and legal fees for a divorce are generally not deductible. Quintanilla Management Company, not a professional at all, received almost $80,000 of the claimed fees; the court allowed $1,294 of it. David Nixon was paid for “cattle consulting,” but no entity called QV Cattle appears anywhere in the evidence. Norman Garza received a $3,000 check with a blank “For” line, explained only as “Personal Security Guard.”

The fees that survived were the ones with proof behind them. Timothy Braden, the accountant who prepared the returns, was paid $11,100, and the court allowed it. Trial lawyer Ricardo Cedillo was the subject of West’s most dramatic testimony, that he had spent $350,000 with him, but the spreadsheet showed $20,000, and the court allowed $20,000. Strasberger, another firm, got $20,000, and Smith Robertson got $5,000 on a check marked “For Legal Fees.”

The repairs that actually won

Not everything failed. The court allowed $15,565 in repairs and maintenance substantiated by checks to Water Well Services and Prime Materials, and $112,257 paid to Q-Haul for equipment repair charges, described in West’s papers as past-due repairs for the bulldozers, sweepers, and scrapers for MPC. That is $127,822 in all, against $166,826 in 2015 repairs the notice had disallowed entirely.

The core question: his basis was zero

All of that was the undercard. The main event was the $6.8 million loss, and it failed on a single word: basis.

Under section 704(d), a partner may deduct a partnership loss only up to the adjusted basis of his partnership interest. Basis starts with what the partner put in, money or property. West put in neither. His only contribution was his time and labor. When the partnership was formed in 2014, his basis was zero.

West argued the note gave him basis. It did not, for two reasons. First, he signed the note in favor of Quintanilla personally, not in favor of the partnership, and a partner’s own note is not the equivalent of cash. Second, under the at-risk rules of section 465 (the rules that limit losses to money you are actually on the hook for), amounts borrowed are not at risk if they are borrowed from a person who has an interest in the activity, and Quintanilla was the other 50% general partner. His all-assets pledge did not help either: he pledged his assets to secure his own liability to Quintanilla, not partnership debt, and a partner’s note counts only if it is readily tradeable on an established securities market, which West did not show.

Nor did the 2015 asset sale help. The $4.5 million transfer was a sale, not a repayment of the note, and it did not affect his basis. Under section 704(d), the excess of a partner’s share of loss over basis carries over until it is repaid to the partnership, and in the court’s words, “a repayment that has not happened.” The court did not even reach the question whether the loss would have been ordinary or capital. With a zero basis, there was nothing to deduct.

The court’s answer

The court held West did not incur a deductible loss in 2016. It sustained the IRS’s determinations in large part: the $162,091 in unreported income stood, most of the deductions failed for lack of substantiation, and the deficiencies stood in amounts slightly less than the notice determined, to be computed under Rule 155.

The penalties stood too. Section 6662(a) imposes a 20% penalty on the part of an underpayment due to a substantial understatement of tax, and section 6664(c)(1) excuses it only on a showing of reasonable cause and good faith. West argued it was unfair to penalize him because he was owed refunds for the commodity losses, because Quintanilla had not answered DOJ subpoenas and had become a hostile ex-partner, and because the IRS had refused to accept delivery of 27 or more boxes of documents. The court was unmoved: he had the opportunity to present those boxes himself, he proved nothing about the subpoenas, and the claim that he did not really owe the tax was an assertion the court did not sustain. He had hired a professional to prepare his returns, but he made no showing about what information he gave the preparer. No reasonable cause was shown, and West is liable for the accuracy-related penalties on the deficiencies.

The twist: he won the small battles

Here is the part that makes this case more than a rout. West walked out with real wins, just not the one he came for. The court allowed $127,822 in repairs the notice had denied outright, $45,000 in 2016 legal fees the notice had allowed at zero, and $5,105 more in 2015 legal fees than the notice allowed, the difference between the $9,103 the court allowed and the $3,998 the notice allowed. In all, the court allowed $177,927 in deductions beyond what the notice allowed, and it left in place the $131,730 allowance that beat West’s own numbers. Small wins, honestly earned, with checks and invoices behind them. The deficiencies and the penalties still stood. These were wins inside a loss, not a reversal.

But the $6.8 million loss, the whole reason he fought for five years, was worth zero. And the Texas judgment, $5,878,127 owed to the man whose money was at stake, still stands unpaid.

The checklist: what West teaches

• You cannot deduct a loss you never paid for. Basis is money or property in, not time, and not a note to your own partner. West put in zero, so zero was deductible.
• Borrowing from your own partner is not being at risk. The at-risk rules exclude amounts borrowed from a person with an interest in the activity, and the other 50% partner is exactly that person.
• Records are the case. Spreadsheets built seven years later, invoices written at your own direction, and checks to companies you partly own do not prove a deduction. The court will not comb 2,000 pages to build your argument for you.
• Travel needs names, dates, and a purpose, written down when it happens. Section 274(d) has no estimate button, and a trip form that says “PURPOSE: PERSONAL” is evidence too.
• A check’s “For” line is evidence. “Antique cars,” a blank line, “Personal Security Guard”: the court reads all of it.
• Small wins are real, but they do not save the big claim. $177,927 in extra deductions did not dent a $563,539 bill built on a $6.8 million loss that never existed.
• The IRS adds up your bank deposits. If money lands in your accounts and you cannot show it was not income, the bank deposits method will count it.

Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems, back taxes, liens, levies, garnishments, and audits, for individuals and businesses in all 50 states and around the world.