YOKO ONO, JOHN LENNON ESTATE SUE IRS

Yoko Ono and the estate of her late husband, John Lennon, are suing the Internal Revenue Service to contest a bill for back taxes of $592,288, growing mainly out of their investment in a cattle-breeding operation.

As a side issue, they are quarreling with the IRS over the value of a vintage, customized Phantom V Rolls-Royce that the Beatles used and that Lennon later donated to charity. After his death in 1980, the car was sold for $2.99 million.

On their 1977 tax return, the Lennons claimed the car was worth $200,000; the IRS allowed $100,000; in protest, the Lennons reestimated the value at $2 million. Mrs. Lennon and the estate are now willing to settle on $435,726, although the IRS is standing firm at $100,000.

According to a suit filed in U.S. Tax Court, most of the Lennons’ tax problems are traceable to their investment in cattle in 1977. They put up a minimum amount of cash and gave a note for the balance of the purchase price.

The couple bought 122 cows for $1.5 million, 10 bulls for $350,000, real estate for $740,000, and used equipment for $100,000. Their total cash outlay on the $2.7 million deal was $375,000.

The Lennons, “both individually and through their professional staff, closely monitored the day-to-day operations of their cattle-breeding business, always with the goal of profiting therefrom,” the suit stated.

The IRS held that the operation was not entered into for profit at all, but as a tax shelter, and that the notes were only contingent liabilities for the Lennons. Thus, the agency refused to permit the couple a $716,129 write-off for losses suffered in the first year of the operation, a $195,000 investment tax credit, $306,129 of the depreciation they had claimed on the cattle and equipment, and $410,000 in other expenses.

IRS auditors also turned down several claimed deductions unrelated to the cattle operation. They included a $143,920 write-off for limousine service on a tour of Japan, plus charitable contributions of $127,000.

The agency calculated the couple’s 1977 tax liability at $876,141.