23 T.C. 458">*458 Respondent determined a deficiency in income tax of petitioners in the amount of $ 1,254.74 for the taxable year 1948.

The question for decision is whether the bulls sold by petitioners in 1948 were held primarily for sale in the ordinary course of their trade or business or were property used in their trade or business as defined by section 117 (j) (1) of the Internal Revenue Code of 1939.

23 T.C. 458">*459 FINDINGS OF FACT.

Some of the1954 U.S. Tax Ct. LEXIS 23">*24 facts were stipulated and are found accordingly. Others are found from the evidence.

Petitioners are husband and wife, who owned and resided on a farm in Green County, Wisconsin, during 1948. They filed their joint income tax return for 1948 with the collector of internal revenue for the first district of Wisconsin.

On their 1948 return petitioners reported $ 31,311.58 as the gross proceeds from the sale of bulls. As a deduction therefrom petitioners reported $ 19,750.26 as the cost of bulls sold. The resulting net profit of $ 11,561.32 was reported as a long-term capital gain. Respondent determined a deficiency upon the basis that the $ 11,561.32 was ordinary income.

During the year under review petitioners kept their books and records relating to the sale of bulls on a cash basis, merely recording the cost of bulls purchased in 1948 and the proceeds from sales of bulls in 1948, whether bought that year or not. The income as reported from the sales in 1948 was determined by subtracting such cost from the gross proceeds. The amount of $ 19,750.26 reported as cost of bulls sold is not the actual cost of the particular bulls sold in 1948 but is the cost of all bulls purchased1954 U.S. Tax Ct. LEXIS 23">*25 during that year. The sum of $ 31,311.58, however, does represent the actual income from all sales of bulls during 1948.

During 1946, 1947, and 1948, petitioners purchased young bulls, which were about 1 year old at the time of purchase. The purchases were from farmers in the surrounding territory who raised them for sale. Petitioners attempted to get calves from good producing dairy herds. The average price of these bulls was about $ 123 each.

Petitioners rented these bulls to various farmers in the area to run with and breed their dairy cows during the pasture season of 5 to 6 months. Some of the bulls were rented to the farmers who kept them with their cows to be bred in the barn during the winter.

Several of the dairy farmers rented bulls from petitioners from year to year because they did not want to raise or buy bulls and because of the cost and danger involved in keeping bulls on the farm for several years.

Petitioners usually charged a fee of $ 10 to $ 25 for the use of their bulls, but there were occasions when the bulls were loaned without charge. The largest fee ever derived from any one bull by petitioners was $ 50. In 1948 petitioners received total rentals of 1954 U.S. Tax Ct. LEXIS 23">*26 $ 2,200. While the bulls were out on rental they were fed and cared for at the expense of the farmers using them. Petitioners' only expenses were for truckage to and from the various farms and for feed for bulls not rented out.

23 T.C. 458">*460 Petitioners held their bulls for an average of 1 1/2 years, during which time the bulls would be rented out for about two pasture seasons. The holding period for each bull was determined by how unruly and dangerous it became. Petitioners did not keep sufficient records to determine the cost, holding period, or sale price of any particular bull. When sold the bulls were sold to stockyards for slaughtering. Petitioners received an average of approximately $ 250 per bull.

None of the bulls here involved were used for breeding petitioners' own cows, nor were they used for dairy or draft purposes.

Petitioners had been buying, renting, and selling bulls for about 20 years. Their expectation of profit was from the sale of the bulls rather than from the rentals for breeding purposes.

The bulls were held by petitioners primarily for sale in the course of their business.

OPINION.

The question for decision is whether the respondent erred in determining1954 U.S. Tax Ct. LEXIS 23">*27 that the gain realized by petitioners in the taxable year 1948 from the sale of bulls was taxable as ordinary income. Petitioners contend that those sales are to be treated as sales of capital assets, viz, "property used in the trade or business," under section 117 (j) (1), Internal Revenue Code of 1939. ¹ The petitioners claim that they were in the business of renting bulls for breeding purposes. Respondent argues that the bulls were held "primarily for sale to customers in the ordinary course of his [their] trade or business."

1954 U.S. Tax Ct. LEXIS 23">*28 Whether or not petitioners come within section 117 (j) (1) depends on the purpose for which the property was held. Rollingwood Corporation 23 T.C. 458">*461 v. Commissioner, 190 F.2d 263; Mauldin v. Commissioner, 195 F.2d 714; Nelson A. Farry, 13 T.C. 8; A. Benetti Novelty Co., 13 T.C. 1072. There is no fixed formula in making this determination. It is a question of fact.

Upon the evidence received at the hearing we have found as an ultimate fact that petitioners held the bulls primarily for sale to customers in the ordinary course of their business.

Petitioners bought bulls for approximately $ 123 each and sold them 1 1/2 years later for about $ 250. In the interim they rented their bulls out to neighboring farmers for breeding purposes for a fee of $ 10 to $ 25 and sometimes loaned them for nothing. The farmers using the bulls fed and cared for them at no expense to petitioners. Petitioner Albert Erickson testified that he expected to make his profit from the sale of a bull and not from its rental. At no time were the bulls here involved used to breed1954 U.S. Tax Ct. LEXIS 23">*29 petitioners' own cows.

The rental was merely a means of raising and feeding the bulls until they were salable. Petitioners did not, nor did they expect to, make their profit from the rental. Their profit came from the increase in size and weight of the bulls. Usually petitioners could rent the bulls out for only two pasture seasons, receiving at most total fees of $ 50 per bull. The rentals were but a small part of the income derived from the bulls. In 1948 petitioners received $ 31,311.58 in gross sales and a net profit of $ 11,561.32, while receiving only $ 2,200 in rentals. Petitioners argue that the disparity in rental income and the proceeds from the sales should be disregarded as not controlling, citing Delsing v. United States, 186 F.2d 59. We do not find the Delsing case in point.

In that case the taxpayer held two groups of houses, one for sale and the other for rent. In one year the taxpayer sold houses from both groups, reporting income from the former as ordinary income and income from the latter as a section 117 (j) (1) capital gain. The Court of Appeals for the Fifth Circuit reversed the District Court and sustained the1954 U.S. Tax Ct. LEXIS 23">*30 treatment by the taxpayer. In commenting that the disparity between income from sales and from rentals was not controlling, the court distinguished the activities of the taxpayer in selling houses held for sale and selling those held for rent. Here but one herd of bulls is involved and it was held for sale.

Renting these bulls in order to realize profit while growing and fattening them for market does not establish that the primary purpose in holding them was for rental for breeding purposes. Petitioners point out that they always tried to get bulls from good stock in order to get desirable breeders; but, if petitioners had not bought good breeders they would not have been able to rent their bulls out and have them raised by someone else.

23 T.C. 458">*462 Section 117 (j) (1) was not meant to apply to a situation where one of the essential or substantial objects in holding property is for sale. Rollingwood Corporation v. Commissioner, supra. The sales in this case were not merely incidental to the business of petitioner. They were the business. They were not isolated transactions. There was a definite routine established over 20 years whereby petitioners1954 U.S. Tax Ct. LEXIS 23">*31 bought bulls, rented them, and sold them. Cf. Gutowsky v. Jones, 100 F. Supp. 852">100 F. Supp. 852; Brown v. Commissioner, 143 F.2d 468. Petitioners argue that the bulls were sold only when they became dangerous and were of no further use as breeders, citing Pfister v. United States, 102 F. Supp. 640">102 F. Supp. 640, reversed without discussion on this point 205 F.2d 538; and United States v. O'Neill, 211 F.2d 701. In both of those cases the sales were forced sales necessitated by economic or administrative reasons. In the Pfister case the sale was made because of the shortage of ranch help, and in the O'Neill case water and feed conditions required the sale. Here the sales were not required by any unforeseen economic or administrative reason, but were planned. Whether the bulls were of any use as breeders is of no consequence except as their condition affected income during the holding period. Petitioners bought the bulls intending to sell them, after raising and fattening them. Renting them was but a means of getting the bulls raised1954 U.S. Tax Ct. LEXIS 23">*32 and fattened at the expense of someone else.

Accordingly we hold that the $ 11,561.32 received by petitioners in 1948 should be taxed as ordinary income.

Decision will be entered for the respondent.