*2580 Losses sustained during the years 1918, 1920, 1921 and 1922 in operating a farm as a business are deductible from gross income.
*437 Deficiencies have been determined against the petitioner, executrix of the estate of Frederick G. Crane, for the years 1918, 1920, 1921, 1922, and for the period January 1 to March 15, 1923, in the respective amounts of $45,634.55, $2,902.87, $3,871.98, $34,675.50, and $796.54. Appeals covering these years were filed under the above indicated docket numbers and were consolidated for the purpose of hearing and decision. For each of the years the respondent has disallowed deductions claimed for losses sustained in the operation of a farm, and for the year 1918 has disallowed an additional deduction claimed as a loss upon the sale of 3,600 shares of the capital stock of the American Telephone & Telegraph Co. In respect of the latter issue the parties have stipulated since the hearing of the appeal that a deductible loss of $68,659.41 was sustained.
*438 FINDINGS OF FACT.
The decedent, *2581 Frederick G. Crane, who died March 15, 1923, was a resident of Dalton, Mass., and was a partner in the firm of Crane & Co., paper manufacturers of that city. In the year 1902 he purchased several small farms situated about 3 miles from Dalton, which he consolidated. He purchased a herd of Jersey cows and started a milk route in the City of Dalton. He also began a poultry business and a hog business. He raised potatoes and hay and other crops for market. He purchased cattle to fatten for market. In the year 1909 he set out an orchard of 3,000 trees. Later, in the year 1914, he started the business of raising Belgian draft horses for sale. Additional land adjoining the farm was purchased from time to time so that in the year 1917 it consisted of about 3,500 acres, of which 693 acres were under cultivation and the remainder in woodland and pasture. It was known as Flintstone Farm. There were 27 buildings on the farm, 15 of which were barns. The buildings were all of wooden construction and were on the premises when acquired, with the exception of 2 barns and 1 dwelling house built by the decedent. All of the dwelling houses were occupied by farm employees.
In 1914 the decedent*2582 withdrew from active service with Crane & Co. and thereafter devoted practically his entire time to the management of the farm. He was chairman of the board of trustees for the Berkshire County Farm Bureau and took great interest in all agricultural activities. Farm meetings were held from time to time at the Flintstone Farm for the purpose of showing and stimulating interest in pure-breed cattle and improved farming methods. The ideas and methods employed on the farm were entirely practical and were suitable for adoption on any farm in that vicinity.
The decedent did not live on the farm. There was no house suitable for such use. The farm was not used for any social purposes by the decedent or his family. It had no golf course, or race track, or greenhouse, or other such asset. No money was ever spent to beautify the grounds or buildings. All expenditures that were made were for utilitarian purposes.
About the year 1917 it was discovered that the herd was infected with tuberculosis to the extent of about 90 per cent. Subsequently, another disease known as contagious abortion developed. These diseases resulted in heavy losses, extending over the years 1917, 1918, and*2583 1919. The decedent acquired grade cattle in order to continue the milk route and later replaced these with pure-breed Shorthorns. In the year 1919 there was excessive rainfall during the summer and fall which damaged the crops and seriously interfered with harvesting. As a result practically the entire hay crop was lost. This *439 necessitated the purchase of feed for the stock during the year 1920, greatly increasing expenditures for that year.
The decedent employed a farm manager and a bookkeeper. In the year 1920 he engaged a public accountant to install a system of accounting that would accurately reflect the outcome of the operations of each department. In the year 1918 the poultry department, which had been unprofitable, was discontinued. The raising of Belgian draft horses for sale was also discontinued because found to be unprofitable. The milk route was likewise discontinued in the year 1921. The orchard and hog-raising departments proved profitable and were continued during all the taxable years. The decedent and the farm employees and their families used the farm produce, which they purchased at prevailing prices. The gross receipts of the farm for the*2584 years 1917 to 1922, inclusive, were as follows:
| 1917 | 1918 | 1919 | |
| Livestock and their products | $31,956.87 | $59,819.50 | $69,351.24 |
| Miscellaneous | 595.00 | 191.62 | 624.65 |
| Total sales | 32,551.87 | 60,011.12 | 69,975.89 |
| 1920 | 1921 | 1922 | |
| Creamery | 32,820.23 | 23,031.89 | 5,436.04 |
| Livestock and their products | 6,784.05 | 5,982.22 | 7,069.49 |
| Orchard | 4,576.17 | 4,836.26 | 3,878.44 |
| Meats | 4,278.23 | 1,777.97 | 1,510.31 |
| Farm | 4,106.12 | 1,949.43 | 2,043.14 |
| Feed | 1,592.12 | 311.51 | 104.75 |
| Show prizes | 1,661.50 | 726.00 | 210.00 |
| Stud fees | 135.00 | 307.00 | 58.00 |
| Miscellaneous | 205.18 | 122.26 | 378.26 |
| Insurance | 1,000.00 | ||
| Sand | 295.75 | ||
| Total sales | 56,158.60 | 40,044.94 | 20,984.18 |
The net losses sustained over the same period and up to March 15, 1923, the date of decedent's death, were as follows:
| 1917 | $58,476.31 |
| 1918 | 70,143.56 |
| 1919 | 73,383.57 |
| 1920 | 102,103.32 |
| 1921 | $92,289.19 |
| 1922 | 52,996.76 |
| Jan. 1 to Mar. 15, 1923 | 11,247.32 |
In making his income-tax returns for the years 1917 to 1921, inclusive, the decedent did not make any deduction on account of losses sustained in operating the farm. The losses sustained during the years 1922 and 1923*2585 were claimed in income-tax returns but denied by the Commissioner.
OPINION.
SMITH: Both the Revenue Acts of 1918 and 1921 provide that in computing net income there shall be allowed as deductions "Losses *440 sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business" or if incurred in any transaction entered into for profit, though not connected with the trade or business. The petitioner contends that the decedent's farming operations above described were carried on as a "business" within the meaning of the term as it is used in the statutes and for a profit, and that the losses sustained are, therefore, deductible in computing net income. The respondent contends that the decedent was not engaged in farming as a trade or business; that the farm was not operated for profit but for pleasure, and that the losses were, therefore, personal losses and are not deductible.
We can not agree with the respondent's contentions. The mere fact that a farm has been operated over a number of years at a loss for each year, the fact upon which respondent mainly relies, does not justify the conclusion that the farm was not*2586 operated as a business enterprise or with the hope and expectation of realizing a profit. ; ; .
Business has been defined by the Supreme Court as "that which occupies the time, attention, and labor of men for the purpose of livelihood or profit." See . The evidence is that the operation of the farm here in question occupied, during the taxable years, practically all of the time, attention and labor of some 35 men, including the decedent. The evidence further shows that the farm was operated upon a practical and business-like basis and that the decedent made considerable effort from time to time to turn the yearly deficit into a profit. His ultimate failure in this may have been due to numerous causes. Some of them have been ascertained and recounted. About the year 1917 the herd of pure-breed cattle was found to be infected with tuberculosis. Later on it developed that another disease known as contagious abortion was afflicting the herd. As a result of these diseases the*2587 herd had to be disposed of at a heavy loss extending over the years 1917 to 1921. Excessive rainfall during the year 1919 caused considerable damage to the crops, which made it necessary to purchase feed for the stock during the year 1920, increasing operating expenses for that year. The evidence shows that the decedent made every effort to put his farm upon a profitable basis. In the first place he improved his lands. He introduced pure-breed cattle. He put into operation a dairy and a poultry business. He purchased cattle to fatten for the market. He raised hogs and draft horses for sale. He set out a large orchard for the purpose of producing fruit for the market. Certainly these are efforts that are usually put forth for business reasons and for the *441 purpose of gain. He kept a separate bank account for the farm and employed a bookkeeper to handle the farm accounts. He finally engaged an expert accountant to install a thorough accounting system whereby the exact result of the operation of each department could be ascertained. Some of the departments which persistently showed losses were discontinued.
The decedent devoted practically all of his time to the*2588 farm. It was not a diversion or a hobby with him but a vocation. He was himself a farmer. His interest was centered in farming as a profession. He strove to make his farm an exemplary one and to demonstrate to other farmers of his community the practicability of scientific farming. He employed men educated along these lines and capable of carrying out his ideas. He was not a sportsman. His farm boasted neither a golf course nor a race track, nor any of the other so-called luxuries often associated with a wealthy man's country estate. Every effort of the farm was directed towards the production of merchantable produce. All of the produce was marketed to the best advantage possible. The gross receipts for each of the years 1917 to 1922, inclusive, ranged from approximately $21,000 to $70,000. The losses ranged from approximately $52,000 to $100,000. On an average the losses for each year were about twice the gross receipts. In the case of , which is relied upon by the respondent, the losses for each of the two years were over $16,000 and the gross receipts were $1,100 in one year and $1,600 in the other. *2589 In that case the court said that the test was one of actual intention and that it had nothing to go on but the gross receipts and losses. Here there is ample evidence to overcome the presumption, if any, that because no profit was actually earned over a period of years it was not a business undertaken for profit.
In the case of , the test of whether a farm was operated as a business was said to be whether farming was engaged in as a regular occupation and in accordance with recognized business principles and practices. To the same effect is .
We think that the evidence in this case meets these tests as well as those which we have heretofore laid down in ;; , and , and that the losses sustained are deductible in computing net income for the years in question.
Judgment will be entered on 15 days' notice, under Rule 50.
Considered by TRUSSELL, LOVE, and LITTLETON.