*2081 A farm operated by a taxpayer primarily to supply himself with milk and other produce, upon which a bookkeeping charge is made, the incidental surplus being offered first to farm employees and the remainder sold to others, held, upon all the evidence, not to be operated as a business, and hence losses sustained are not deductible.
*672 The respondent determined deficiencies in income tax for the years 1926 and 1927 against Louise Cheney of $546.59 and $612.24, respectively; against Anne W. Cheney of $539.63 and $421.48, respectively; and against Robert Cheney of $1,109.93 and $1,201.07, respectively. In determining these deficiencies respondent disallowed deductions of each petitioner for 1926 of $4,499.55 and for 1927 of $2,991.59, the proportionate part of losses sustained in the joint operation of a farm. Petitioners contend that the farm was operated as a trade or business, and that losses thereby incurred are deductible.
FINDINGS OF FACT.
Petitioners are individuals residing at South Manchester, Conn.*2082 They compose a single household, living together in a home with extensive grounds, flower gardens, and a greenhouse, for the care of which several men are employed.
About three-quarters of a mile from their home is a farm, known as "Greenway Farm," which they have had operated during 1926 and thereafter. The farm consists of 60 acres, of which 40 are under intensive cultivation, producing hay, alfalfa, corn, and some vegetables, primarily for consumption on the farm. The remaining acreage is taken up with buildings, pastures and woodland. Improvements on the place consist of a dairy barn, creamery, horse barn, dairy shed, automobile shed, poultry houses, brooder houses, and three tenant houses for the use of farm help.
During 1926 and 1927 the farm contained from two to four horses and about fifteen head of registered Guernsey cattle used for dairy *673 and breeding purposes and of which three or four head a year are sold. In 1927 such sales amounted to $2,705, in 1928 to $1,050, and in 1929 to $890. There were no sales in 1926. The farm produces dairy and poultry products of high quality.
Since March, 1926, petitioners have placed all the farm's operations in*2083 charge of a New York firm, engaged in farm management and accounting. A manager visits it sometimes twice a month, and six or eight men are regularly employed in its maintenance and operation. A foreman receives $150 a month, a herdsman $125, and others between $70 and $90. The same New York firm also has charge of the care of petitioners' home estate. For all its services this firm receives a monthly fee of $150. In 1926 and 1927 one-half of this was allocated as an expense of the farm.
The primary purpose of the operation of the farm was to supply the petitioners with the produce, as much of it as they wanted, and only the surplus was sold.
The greater part of the farm's dairy and poultry produce was delivered to petitioners, who were charged with it on the farm's accounts at approximate local market prices. During 1926 and 1927 they normally required two-thirds of the milk produced; or more if guests were present. Any surplus which remained after their requirements were filled was sold locally to a few customers who took a quart or two a day and to local milk dealers. Something less than 10 per cent of the produce was bought by the farm employees. The farm's expenses, *2084 credited receipts, and portion of such receipts represented by sales to petitioners, are as follows:
| 1926 | 1927 | 1928 | 1929 | |
| Expenses | $18,907.03 | $19,493.43 | $16,891.94 | $15,607.80 |
| Receipts | 6,908.37 | 10,518.65 | 9,759.31 | 9,427.44 |
| Sales to petitioners | 4,816.50 | 5,015.53 | 4,834.31 | 5,897.95 |
Petitioners frequently visit the farm, taking pride in the cattle and condition of the place, and require an average of two men in the dairy, although one full-time and one part-time man could do the work. The farm is not used for social purposes, and contains no recreational facilities.
OPINION.
STERNHAGEN: The petitioners urge that the operation of the Greenway Farm was a business and hence that the excess each year of cost of operation over receipts (including bookkeeping charges to the owners for produce) was deductible. The Commissioner has held that these were not business losses, and we think that the evidence proves he was right.
*674 The petitioners owned and operated the farm not for the purpose of profit or livelihood, but to provide them at their country place with food of good quality. Sale or profit was not their purpose. Sale was*2085 merely a resulting incident in the disposition of the minor and varying surplus. Evidently the farm would have been carried on whether sale could have been made of this surplus or not. The primary intention was not to run a business or make a profit, but to produce good food for home consumption. The testimony that the accounting and managing firm were instructed to operate the farm "on a business basis and reduce expenses and increase receipts as much as possible" shows but a natural instruction to operate with such economy as was consistent with the production sought and to avoid wasteful operation. And the hope expressed by the accountant in his testimony, that some day a profit would be realized, is not supported by the facts. The reduction in expenses and the increases in sales and receipts during four years do not indicate when, if ever, they may be expected to cross into a net gain; and, furthermore, in such a computation it is incorrect to treat as a profit any part of the arbitrary charge made by petitioners in respect of goods consumed by themselves. It would be specious to say that a vain hope that on some remote day a profit may result is enough to give the operation*2086 of the farm the character of trade or business. It is far different from saying, as the Board and the courts have in other cases, that the fact of a loss does not deprive a business enterprise of its character as a business. Here the business character is otherwise lacking, and such losses as there were were therefore not incurred in trade or in transactions entered into for profit.
Judgment will be entered for the respondent.
SEAWELL dissents.