LV doctor prevails in $1 million dispute with IRS

Jerry Moskal

Friday, June 1, 2001 | 10:31 a.m.

WASHINGTON -- With a court victory under his belt, Dr. James Tinnell returned to concentrating on his first love -- mining.

The Las Vegas physician found himself vindicated after U.S. Tax Court Judge L. Paige Marvel overturned the Internal Revenue Service and ruled that Tinnell engaged in mining for a profit -- not simply pleasure -- and therefore could deduct his mining expenses.

Tinnell has mined for gold, silver and rocks.

It took almost four years for Tinnell to prevail in the dispute. Tinnell was relieved of having to pay slightly more than $1 million in additional 1991-94 taxes and nearly all penalties except for about $16,000 on a stock sale.

"It was relief, a big one," Tinnell said in a telephone interview. "That's not a problem (the penalty). That's a very small problem.'

He said he was also encouraged because Marvel's opinion said that he may not have to pay the "accuracy penalty" either if he can show "reasonable cause for the understatement and acted in good faith."

Although Tinnell derived personal pleasure from being outdoors and toiling at his mining ventures, Marvel ruled that did not negate the fact that Tinnell's Jetco Enterprise Inc. was a mining business with a profit goal and can deduct expenses and losses incurred from mining.

"Some component of personal pleasure does not negate a bona fide profit motive," Marvel wrote in his 46-page opinion.

Tinnell, who invented and marketed a successful over-the-counter cream for the treatment of herpes, said that he hopes one day to return to gold and silver mining. In the interim, he added, decorative rock mining will do.

"We're not mining gold and silver at the present time because the price is depressed," he said. "We'll certainly go after gold again once the price goes up."

Because of water shortages, he noted, yards of half of all new homes built in the Las Vegas area must be in decorative rock, and "who knows, someday it may be all rock and not grass."

To operate his mining ventures, Tinnell had been forced to use dividends and to sell some of his stock in Zila Pharmaceuticals, a company that markets the herpes medication.

A final decision in the case won't be signed by Marvel until attorneys for Tinnell and the IRS determine the amount of accuracy-related penalties Tinnell may have to pay. The IRS would then have 90 days to appeal to the U.S. Court of Appeals.

Tinnell's tax attorney, W. Leslie Sully Jr. of Las Vegas, said he has not received any indication that the IRS would appeal. He said he would be "disappointed if they did."