Field v. COMMISSIONER OF INTERNAL REVENUE
| Citation | 26 BTA 116 |
| Decision Date | 18 May 1932 |
| Docket Number | Docket No. 36908. |
| Parties | MARSHALL FIELD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Beverley R. Robinson, Esq., Edward N. Perkins, Esq., Daniel B Priest, Esq., and Samuel L. Rosenberry, Esq., for the petitioner.
John D. Foley, Esq., and James C. Maddox, Esq., for the respondent.
The Commissioner determined a deficiency of $364,238.22 in the petitioner's income tax for 1923. The pleadings raise several issues that have been disposed of by stipulation and/or concession. The only issues for our determination are the deductibility from gross income of (1) losses sustained in the operation of a farm; (2) losses sustained in the racing and breeding of horses; and (3) a contribution of $1,000 to a so-called Insulin Committee.
FINDINGS OF FACT.
The petitioner is engaged in the banking business as a member of the firm of Field, Gore & Company, at 38 Wall Street, New York City. In 1923 he devoted considerable time to other enterprises such as the business of Marshall Field & Company; Marshall Field Estate in Chicago; the operation of a farm; and the racing and breeding of horses.
In 1920 the petitioner bought approximately 1,700 acres of land near Huntington, Long Island, at a price of $1,600 per acre and set aside 500 acres for a farm designated and hereinafter referred to as Caumsett Farm; the remainder of the tract was used as a summer estate, on which he built a residence in 1921. There were some buildings on Caumsett Farm when acquired and petitioner constructed others upon it. There was "a certain amount of work done on a number of the barns and buildings, and so forth, that was done in a certain way for the looks of it."
Prior to 1923 the petitioner was interested in and studied methods of breeding Guernsey cattle. Upon the acquisition of the Caumsett Farm petitioner consulted with importers of Guernsey cattle and operators of farms for breeding Guernsey stock. He spent considerable time investigating the possibilities of developing a fine herd of these cattle on the Caumsett Farm. He began acquiring Guernsey cattle in 1922 and kept them at a farm in New Jersey until the Caumsett Farm was ready to receive them. In 1923 petitioner employed Grover Dunning, a man experienced in the operation of a Guernsey breeding farm, as manager of the Caumsett Farm. Under the contract made with Dunning, petitioner guaranteed him a salary of $3,000 a year and gave him a 20 per cent interest in the herd plus a 20 per cent interest in the profits, if any. If losses were sustained, Dunning was to share his proportional part of them. Prior to this time the fee in the farm was transferred by the petitioner to his wife, Evelyn Marshall Field. The petitioner determined that a reasonable rental to charge the farming operations was $15,000 per year and during 1923 rental was paid in the amount of $1,395.47.
Farming operations were started on the Caumsett Farm on or about July 1, 1923, with a herd of about 30 pure blood Guernsey cattle. In connection with the breeding of Guernsey cows, a dairy was operated and the milk was sold at a premium over certified milk. The sales amounted to about 200 quarts daily, at 20 cents per quart wholesale.
The sales from the Caumsett Farm from July 1 to December 31, 1923, amounted to $4,518.13. The net result of operations for the six-month period ended December 31, 1923, was a loss of $43,282.38. The inventory of the farm at December 31, 1923, was $50,311.48. Sales from the farm for the period 1924 to 1928, inclusive (the latter year covering a period from January 1 to December 18), varied from $31,844.86 in 1924 to $59,219.73 in 1928. The inventory on December 18, 1928, was $63,911.80. The net losses from operations for 1924 to 1928 were as follows:
1924 ____________________________________ $70,616.97
1925 ____________________________________ 74,344.35
1926 ____________________________________ 85,725.97
1927 ____________________________________ 62,670.03
1928 (to Dec. 18, incl.)_________________ 62,435.60
The Caumsett Farm operations have been continuous from July 1, 1923. Near the close of 1928 a corporation was organized for the operation of the farm. By breeding and purchase the herd of Guernseys on Caumsett Farm has increased to 90 head of cattle. In 1925 the petitioner terminated his contract with Dunning and engaged the services of one John S. Clark, who had been the manager of the Mixter Farm in Massachusetts, as manager of the Caumsett Farm at a salary of $3,600 per annum, plus a share of the profits. This man had been very successful in operating the Mixter Farm for the breeding of Guernsey cattle, with the result that the value of the herd increased in a few years from about $50,000 to $700,000, the price realized on a public sale of the herd alone after Mixter's death. Since coming to the petitioner's farm, Clark has succeeded in increasing the value of the herd and has developed a finer blood in the cattle. A careful record has been kept of every cow, showing its pedigree, date of birth, death, or disposal, milk record and butter-fat production, and other data from which the cost of producing and keeping the cow can be determined, as well as its value at any time. The records of the services of the bulls, the breeding of particular strains, and the calving periods are kept.
The petitioner's Guernsey cattle are sent to national shows, where, in 1928, one of his young bulls sold for $4,500. Other sales have been made, but the better cows and young stock have been retained for breeding purposes.
When stock was first brought upon the Caumsett Farm the petitioner had certified public accountants set up an accounting system for the farm and they soon sent an accountant to the farm to keep its books and records. This man lives at the farm and renders monthly reports to the petitioner and prepares semiannual and annual reports of the income and expenses of the farm. The accounts are regularly audited and the results of these audits are carefully studied by the petitioner. The sources of revenue from the Caumsett Farm operations are the sale of pure blooded Guernsey cattle and the sale of milk. The petitioner's home, adjacent to but separated from the farm proper, is charged at market prices for all supplies procured from the farm. During the period July 1 to December 31, 1923, the income and expenses of the Caumsett Farm were as follows:
During and subsequent to 1923, the Caumsett Farm was conducted by the petitioner as a business for the...
To continue reading
Request your trial
-
The Reuben H. Donnelley Corporation v. COMMISSIONER OF INTERNAL REVENUE
... ... This work was performed by solicitors in gathering information with respect to the proposed canvass and the proposed circulation, doing preliminary research work in the field, establishing the directories in libraries, Pullman cars and on steamships, and getting recipients to accept the directories and use them intelligently. This work was preliminary to the establishing of the business and was necessary to the sale of advertising and space in subsequent editions of the ... ...