45 T.C. 261">*261 The Commissioner determined deficiencies in petitioner's income tax for the years 1955-59, as follows:

Petitioner contends that there 1965 U.S. Tax Ct. LEXIS 6">*7 were no deficiencies in the above years, and that there were overpayments of tax in 1955, 1956, 1958, and 1959 in the amounts of $ 940.26, $ 5,116.72, $ 3,375.95, and $ 4,162.96. The matter of overpayments in 1958 and 1959 is no longer in issue.

The principal question in this case concerns the deductibility of losses incurred by petitioner in the breeding and training of horses in Montana and Maryland from 1955 through 1959. Also at issue is whether legal expenses incurred by petitioner in 1959 in obtaining the release of a cash bequest with interest and a residuary legacy from the U.S. Office of Alien Property are deductible under section 212, I.R.C. 1954.

FINDINGS OF FACT

The stipulation of facts filed by the parties together with the exhibits attached thereto are incorporated herein by this reference.

Petitioner, a woman in her fifties, resides at 2 Sutton Place South, New York, N.Y. She filed her individual income tax returns for the calendar years 1955-59, inclusive, with the district director of internal revenue for the Upper Manhattan District of New York. She is a person of considerable means. Her returns for the years 1955-62 disclose income from dividends, taxable interest, 1965 U.S. Tax Ct. LEXIS 6">*8 net capital gains, 45 T.C. 261">*262 and tax-exempt income from municipal bonds and other sources, as follows:

Petitioner was born in Hungary. Her father was a Hungarian count, and her mother an American, the daughter of Marcus Daly who had made his fortune in copper in Montana and was sometimes referred to as the "copper king" of Montana. Petitioner was raised in Hungary on her father's estate and had lived there for more than 30 years when she came to the United States in 1946 to take up residence here. However, she had previously been in this country a number of times to visit her maternal grandmother in 1965 U.S. Tax Ct. LEXIS 6">*9 Montana. (Her grandfather, Marcus Daly, had died in 1900.)

The estate in Hungary consisted of some 16,000 to 18,000 acres, about half of which was devoted to forestry products and the other half to livestock and crop cultivation. Some 30 to 50 families lived on the estate and supplied the required labor. Petitioner's father supervised the entire estate, but he was assisted by a chief forester as well as by a farm manager. Among other things, the farm had a dairy operation consisting of about 60 to 70 cows; pigs were raised for internal consumption and sale; calves were regularly produced and sold as veal, the basic meat of Hungary; and various crops were produced, including grains, corn, potatoes, and sugar beets. In addition, there were bred, trained, and maintained on the farm some 20 or so teams of oxen and water buffalo for very heavy farming chores, approximately 40 to 60 heavy horses for somewhat lighter chores, and between 25 and 50 riding and carriage horses primarily for use on the estate, but also, on occasion, for sale. The riding and carriage horses consisted of a breed of horse known as the Hungarian or Hungarian Half-Bred. Also, petitioner's father was interested 1965 U.S. Tax Ct. LEXIS 6">*10 in horseracing, and he personally supervised the breeding and training of Thoroughbred racing horses on the estate.

While living in Hungary petitioner obtained substantial knowledge regarding horse breeding, training and management through extensive reading, observation of others, and practical experience. In addition, 45 T.C. 261">*263 she received some formal instruction in England with respect to these matters.

From about 1930 to 1946 the breeding, raising, and training of the Hungarian horses were petitioner's principal responsibility on the farm. She chose which mares were to be bred to which stallions, but did not do any of the physical work required. She instructed the employees in this regard and also with respect to the early stages of training; she personally directed the more advanced training.

The Hungarian or Hungarian Half-Bred is a distinct breed of horses which has been bred in Hungary for over 100 years. They were originally a cross of native Hungarian horses with Arabians and English Thoroughbreds. In Hungary, a registry was maintained to keep records of the pedigrees of this breed. It would be considered an open registry in that it permitted continued breeding of Hungarians with 1965 U.S. Tax Ct. LEXIS 6">*11 Arabians and Thoroughbreds, although it did not admit other breeds. The Hungarian Government maintained its own breeding farms for these horses and private breeders were subject to Government supervision.

The term "Hungarian Half-Bred" was used to distinguish this breed from the "English Thoroughbred." It was not intended to suggest that the Hungarian is not a distinct breed of horses or that it is a "half-breed" or a "mongrel."

During World War II petitioner's father was arrested by the Germans and placed in a concentration camp. Petitioner and her mother remained at the farm during the war years, and petitioner was active in the Hungarian underground. Petitioner's father was liberated by the U.S. Army and was able to reach Switzerland where he was joined by his wife. Both of them then came to the United States. Petitioner remained on the family farm until the end of 1946. At that time it became evident that the Communists were taking over the country, so she also left for the United States.

After coming to the United States, petitioner learned that the Army had brought some Hungarian horses to the United States. In the fall of 1945, the U.S. Army made the first shipment of horses 1965 U.S. Tax Ct. LEXIS 6">*12 from Europe to the United States following the war. A second shipment of horses from Europe to the United States was made in early 1946. The foregoing two shipments consisted of 63 Thoroughbreds, 18 purebred Arabians, 17 Grade Arabians, 9 Lippizaners and 37 Hungarians. Most of these horses were taken from the German Army as spoils of war, but some came from Poland and Hungary. Most were placed in the Remount Service which was a breeding program to produce horses for the U.S. Cavalry. When the U.S. Army discontinued the Remount Service in the Cavalry Branch, the horses were sold at Fort Reno, Okla., in 1948. Petitioner had learned about these Hungarians in the hands of the Army and "had been interested in their fate." When 45 T.C. 261">*264 she heard that the Army was selling them, she "got very interested in the idea of buying some of these blood lines." She "felt that these horses were too good blood lines to get scattered amongst people who did not know what they were, and [she] hoped in the future to be able to breed them and continue."

At this time petitioner and both of her parents were ill so that she was unable to attend the sale personally. Instead, she authorized a Hungarian veterinarian, 1965 U.S. Tax Ct. LEXIS 6">*13 Dr. Bela Marissy, to attend the sale for her and instructed him to purchase such mares as he considered had the best bloodlines. She did not ask him to buy any geldings or stallions. Petitioner chose Dr. Marissy because he knew Hungarian horses, having been employed by the horse division of the Hungarian Department of Agriculture in connection with the state farms that raised the horses. Petitioner left the selection of horses completely to the discretion of Dr. Marissy.

At the sale, Dr. Marissy selected and purchased nine Hungarian brood mares for petitioner at a cost of about $ 150 each. At the time of purchase, eight of the mares were 4, 5, 6, 7, 9, 10, 11, and 16 years of age, respectively, as shown by their pedigrees. These pedigrees were available to and seen by petitioner at that time, but were subsequently lost. Copies of them were not obtained by petitioner until after the hearing in this case. There was no pedigree for one of the mares, Brownie, so that her age is unknown. Five of the mares, including Brownie, were in foal at the time. Title to the horses was placed in the name of Horace Durston, petitioner's uncle (by marriage), as petitioner's agent or nominee, because 1965 U.S. Tax Ct. LEXIS 6">*14 petitioner was not then a U.S. citizen and she was concerned about possible complications with the Hungarian Communist Government. Title to these horses was subsequently transferred to petitioner by her uncle in 1950 together with foals that were born in 1949.

After acquiring the horses in 1948, petitioner had them sent to the ranch of the Bitter Root Stock Farm (Bitter Root) in Montana, a cattle ranch of about 18,000 acres with some 2,000 head of cattle. Petitioner's maternal grandfather, Marcus Daly, became the original owner of Bitter Root around 1880, but in 1948 it was owned by a corporation (also known as Bitter Root Stock Farm). In addition to conducting the cattle operation Marcus Daly raised racehorses at Bitter Root until his death in 1900.

In 1961, and for a period prior thereto, the stock of Bitter Root Stock Farm was owned one-third by petitioner, one-third by Marcus Daly III, one-sixth by Margaret Brown Trimble, and one-sixth by Frances Carroll Brown. These persons acquired their stock interests by inheritance prior to 1961. Petitioner acquired one-half of her stock interest from the estate of her mother, who died on May 31, 1950, and the remaining one-half from the 1965 U.S. Tax Ct. LEXIS 6">*15 estate of her aunt, who died on January 45 T.C. 261">*265 1, 1956. In December of 1961, petitioner contributed all of her stock in Bitter Root Stock Farm to a newly formed corporation, Bitter Root Stock Farm, Inc., of which she was the sole shareholder and, in January of 1962, the newly formed corporation purchased from the other shareholders of Bitter Root Stock Farm the remaining two-thirds of the stock of that corporation with the result that, following these transactions, Bitter Root Stock Farm, Inc., owned all of the stock of Bitter Root Stock Farm. Bitter Root Stock Farm was then merged into Bitter Root Stock Farm, Inc. In 1962, petitioner contributed securities with a fair market value of $ 2,959,401 to Bitter Root Stock Farm, Inc. Dividend income was reported by the corporation for 1962 with respect to those securities in the amount of $ 45,542.58.

In late 1949 or early 1950, petitioner received information to the effect that her horses were not receiving proper care at Bitter Root, whereupon she made a trip to Montana and saw the horses for the first time. She found the horses in very bad shape, and of the five foals born in 1949 only two, one of which was a filly foaled by Brownie, ultimately 1965 U.S. Tax Ct. LEXIS 6">*16 survived. Petitioner moved the horses from the Bitter Root ranch to property that is herein referred to as the Montana farm, and retained the caretaker of the Montana farm, a man who knew something about horses, to look after them. Petitioner spent only a week or 10 days in Montana at this time because her parents were ill and she, herself, was not well.

The Montana farm consists of approximately 125 acres of land and various structures. It is adjacent to and bounded on three sides by Bitter Root, and was originally owned by Marcus Daly in connection with the Bitter Root property. However, the Montana farm was and is separate and distinct from the Bitter Root property that was held in corporate form. After Marcus Daly's death it was owned by petitioner's grandmother. Interests in the property subsequently devolved to petitioner (6/16ths, from the estate of her mother), Marcus Daly III (4/16ths), Frances Carroll Brown (3/16ths), and Margaret Brown Trimble (3/16ths). Petitioner ultimately acquired the interests of the other owners on January 2, 1962, by purchase in the same transactions in which her wholly owned corporation acquired their interests in Bitter Root.

From 1950 through 1965 U.S. Tax Ct. LEXIS 6">*17 1961 petitioner kept her horses on the Montana farm free of charge although she had only a 6/16ths interest in the property. This was pursuant to a loose oral agreement with the other owners that petitioner could use the property if she paid for irrigating expenses and repairs. None of the other owners invested any capital in the Montana farm although they paid their share of taxes on the property.

At the time petitioner transferred her horses to the Montana farm, the property had not been used for at least 5 years. It contained a 45 T.C. 261">*266 large mansion which had not been used except for storage since the death of petitioner's grandmother in the early 1940's, an owner's cottage, a guesthouse, a foreman's house, two help houses, a garage, a large brick stable, some barns and corrals, a shop and machine shed, a bunkhouse, various other structures, and a 1 1/2-mile track which petitioner's grandfather had used in conjunction with raising his Thoroughbred racehorses. Also on the property were a tennis court that is not presently in use, but for which a net was purchased on July 21, 1959, and a swimming pool for which a diving board was purchased at that same time.

Petitioner has remodeled and 1965 U.S. Tax Ct. LEXIS 6">*18 repaired many of the existing structures rather than tear them down and build new ones. She has constructed a number of open sheds for the horses, and uses unpainted pole fences to enclose the horse corrals. The infield of the former racetrack is used as a horse pasture, and the track itself serves as a training and conditioning area for the Hungarian horses.

At the present time petitioner employs the following five persons at the Montana farm:

Petitioner has spent approximately 6 months of each year since 1955 at the Montana farm during which time she engaged in some activities for the Bitter Root Stock Farm. However, most of the time spent in Montana was related to her horses. While at the Montana farm petitioner lived in a small cottage (28 by 30 feet) which was formerly the chauffeur's cottage. The mansion has never been used by petitioner for anything other than storage.

Between 1950 1965 U.S. Tax Ct. LEXIS 6">*19 and 1954, petitioner purchased a farm of approximately 510 acres in Charles County, Md. (Maryland farm), for use in connection with her horses. Petitioner bought this farm originally because prior to her purchase of the interests of the other heirs in the Montana farm, she was uncertain as to how long she would be able to keep her horses there and wanted a place to which she would be able to move them if necessary. Her relations with the other heirs were not harmonious. The Maryland farm contained a house and some other buildings and consisted mainly of uncleared woods, except some 25 to 30 acres that had been cleared but largely unplanted except for a small amount of corn and tobacco. It had a tobacco allotment allowing the planting of 6 3/4 acres of tobacco, and petitioner reported modest receipts from the sale of tobacco during the years 1955-59. 45 T.C. 261">*267 The growing of such crops has now been discontinued. Around 1958, petitioner began to clear some of the acreage with the idea of developing pastures and growing hay, and thus added 10 to 15 acres of cleared land. In addition, she has constructed an indoor ring on the property, remodeled the stable, and built some additional stables. 1965 U.S. Tax Ct. LEXIS 6">*20 Although the original need no longer exists petitioner has kept the Maryland farm using it for the training and boarding of some of her horses, particularly during the winter months when it gets extremely cold at the Montana farm. In 1960 she had two or three horses at the Maryland farm which had been shipped from Montana, and at the time of trial in this case, petitioner had seven such horses at her Maryland farm; she has spent a "certain amount" of her time there. From time to time she would send one or more of her horses from the Maryland farm to the farm of a horse trainer named Major Szilagy in Princeton, N.J., for further training.

From 1955 through 1959, there were only two employees on the Maryland farm, both of whom had worked for the previous owner. In 1960, petitioner hired Ernest Szechenyi to manage the farm, train the horses that would be sent there, and ride in eastern events in which petitioner's horses might be entered. He is paid around $ 600 or $ 700 per month. In 1961 or 1962 petitioner hired Daniel Ritchie as a mechanic on the farm. He is paid approximately $ 400 per month. In addition, one of the original employees is still employed on the Maryland farm as 1965 U.S. Tax Ct. LEXIS 6">*21 a general farmhand.

After her first trip in or about 1950 to the Montana farm, petitioner returned from time to time and began to look for an appropriate Hungarian stallion for her mares. In 1953, she found a stallion, Honpolgar IV, also known as Humphrey, which she felt was satisfactory, and in 1954 leased him from his owner, Jim Edwards, and bred her mares to him.

Humphrey was one of the Hungarian horses acquired by the U.S. Army in Europe during World War II. He was foaled at a state breeding farm in Hungary and was taken to Germany to escape the Russian occupation. He was acquired in Germany by the U.S. Government and shipped to an army remount depot in the United States. Humphrey was leased by Edwards from the Army as a sire for his mares, and when the Army decided to discontinue horses in the Cavalry, Edwards purchased the stallion. Petitioner continued to use Humphrey as a stud for her mares through 1957, and all of the Hungarian horses born to petitioner's mares during the years in issue, 1955-59, and thereafter were sired by him or his offspring or descendants. Humphrey developed a good reputation and an article was written about him after his death in Western Horseman 1965 U.S. Tax Ct. LEXIS 6">*22 Magazine which was reprinted in the January 1964 Green Mountain Horse Association Magazine.

45 T.C. 261">*268 During the years 1954-59 petitioner bred her nine original mares, and the one foaled by Brownie in 1949 that had survived. They were bred annually except for 1958, so that there were no foals in 1959. The mare that was 16 years of age in 1948 and which was therefore 22 years of age in 1954 never was able to conceive from 1954 on. By 1959 petitioner had increased the size of her herd from 11 to 31. As of the end of 1964, not including mares purchased in that year or their foals, petitioner had 39 Hungarian horses, 4 of which were retired mares from her foundation herd. None of the mares have been culled. The following chart shows the progress of petitioner's Hungarian herd between 1955 and 1964:

The average breeding life of a Hungarian mare is approximately 18 years. It can be bred on the average between 4 years of age and 22 years of age, during which time it might have a maximum of 15 foals. A normal foal crop for this breed would be about 65 percent over the years so that an average mare might be expected to produce 10 foals during her lifetime, approximately one-half of which would be colts and the other half fillies.

Hungarian Half-Breds are versatile horses which can be used for many purposes, e.g., jumping, hunting, endurance, dressage, trail 45 T.C. 261">*269 riding, cow cutting, and pleasure riding. They are not racehorses. They are rugged, attractive, and intelligent horses and should compare favorably in a number of respects with established breeds in this country such as the Apaloosa, Arabian, Quarter Horse, and Thoroughbred. Some articles have been written about petitioner's Hungarian Half-Breds in "horse magazines." Some of petitioner's horses have been 1965 U.S. Tax Ct. LEXIS 6">*24 entered in competitions and have enjoyed several successes. Although petitioner is an experienced horsewoman, she has never ridden her horses in any of these events. Most of the riding in competition is done by her stepdaughter or by Ernest Szechenyi.

During the 6 months which petitioner spends at the Montana farm, she is occupied primarily with the training of the horses and the management of the farm. Petitioner decides upon the breeding program to be followed and generally is in charge of the management of the entire operation. During the 6 months of the year that she is not at the Montana farm, petitioner spends some time at her farm in Maryland training her horses, and also engages in various other activities related to the breeding and training of horses, including visits to other horsebreeders, viewing of competitions and shows, and the taking of courses in horse management.

In addition to the training of the horses done by petitioner and her trainers at the Montana and Maryland farms, petitioner sends some of her horses to outside trainers at a cost of approximately $ 150 per month for training and board. Her horses have been sent to such outside trainers in Tucson, Ariz., 1965 U.S. Tax Ct. LEXIS 6">*25 Sheridan, Wyo., Denver, Colo., and Princeton, N.J. Such outside training has ranged from a period of months to several years, depending upon the particular horse and circumstances. The initial training of the horses is done at the Montana farm until the horse is about 4 years old, when it is ready to accept body weight. Basic training is given at this point, sometimes by outside trainers, which lasts from a year to a year and one-half. More advanced training does not start at least until 5. Endurance training is started at 4 and endurance riding at 6. Training in jumping is started before a horse has become accustomed to body weight.

Petitioner maintains a record of all foals produced by her mares which shows the dam and the sire of each foal and a photograph of the foal and its dam. During the years in issue, and up until the date of trial, it would have been premature for petitioner, either alone or in conjunction with others, to attempt to set up a registry in the United States for Hungarians. In establishing the Hungarian as a new breed in this country it would be desirable that there be a band of more than 100 brood mares, but the only other breeder of Hungarians in the 1965 U.S. Tax Ct. LEXIS 6">*26 United States of any consequence, as revealed by this record, is Mrs. Judith Gyurky, a Hungarian emigree who lives in Virginia, and the total number of brood mares owned by petitioner and Mrs. Gyurky 45 T.C. 261">*270 falls far short of 100. There is no convincing evidence that the desired goal of at least 100 brood mares could have been reached by purchasing additional mares abroad. Petitioner has never made any effort to purchase any Hungarians from sources outside the United States nor does the record disclose that any such effort would have been fruitful.

In 1964 petitioner purchased eight Hungarian mares from Mrs. Gyurky as follows:

Mrs. Gyurky is an experienced breeder of Hungarian horses in Virginia who came to the United States in 1949, bringing 13 Hungarian horses with her, consisting of 3 stallions, 6 brood mares, and 4 weanlings. She has sold a number of Hungarian horses (set forth in detail below) to persons other than petitioner, and having no source of income other than her farm conducts her horse operation 1965 U.S. Tax Ct. LEXIS 6">*27 so as to make a profit. In so doing she incurs total annual expenses of between $ 7,000 and $ 8,000.

Mrs. Gyurky sold one of her mares in 1949 for $ 1,500 or $ 2,000. She did some breeding for about a year or two and meanwhile got a job teaching riding at Hollins College for 7 years, using her horses to teach riding and jumping. After "seven years of camp," she put her horses back into breeding. In addition to the foregoing mare sold in 1949 and the horses that Mrs. Gyurky sold in 1964 to petitioner, referred to above, the following constitute all of the sales of Hungarians owned by Mrs. Gyurky: About 8 or 10 weanlings for between $ 200 and $ 300 each; 2 yearlings at $ 300 and $ 1,000, respectively, the latter being subsequently resold on commission as a trained 6-year-old stallion for $ 5,500; two 2-year-olds at $ 300 and $ 650, respectively; three 3-year-olds at $ 2,500, $ 2,500, and $ 1,500, respectively; one 4-year-old stallion at $ 5,000; one 10-year-old gelding for $ 4,000 plus another horse; and one 14-year-old mare for $ 2,200. The foregoing sales were made during the period 1957-64. Mrs. Gyurky now has a stock of some 28 or 30 horses, including her brood mares. Stud fees 1965 U.S. Tax Ct. LEXIS 6">*28 for her stallions are $ 100 per service, the normal fee for horses of the more established breeds. None of petitioner's horses were held for sale prior to 1959 or 1960, and since that time she has had a maximum of five trained geldings for sale. However, up to the date of trial, she has in fact sold only one of them, in late 1964, for $ 3,000. That 45 T.C. 261">*271 horse was then 7 years old and during an unspecified portion of the period 1960-63 had been trained and boarded in New Jersey at a cost of $ 150 a month. She has sold no other horses at any time from her herd.

In 1955 and 1957 petitioner reported rental income for the Montana farm of $ 106.27 and $ 153.30, respectively, from an undisclosed source, and in 1959 she reported agricultural program payments of $ 1,320 for the Montana farm. On her income tax returns petitioner reported the following income on sales of produce from the Maryland farm:

These are all of the items of income earned by petitioner's horse and farm operations in Montana and Maryland, except possibly for some unreported sales of hay 1965 U.S. Tax Ct. LEXIS 6">*29 to the Bitter Root Stock Farm. Tobacco is no longer grown on the Maryland farm.

During the years 1955-62, petitioner incurred the following expenses with regard to the Montana farm:

1965 U.S. Tax Ct. LEXIS 6">*30 45 T.C. 261">*272 The amounts set forth above in respect of the years 1957, 1958, and 1959 were deducted by petitioner in her income tax returns for such years. Some amounts were deducted by petitioner in her income tax returns for the expenses set forth above in respect of the years 1955 and 1956. Those amounts which were not deducted formed the basis for petitioner's refund claims for 1955 and 1956.

During each of the years at issue petitioner incurred and paid the following expenses exclusive of property taxes for 1955 through 1959 and expenses for the years 1960-62 with regard to the Maryland farm, all of which were deducted by petitioner in her respective income tax returns for the stated years:

The total expenses incurred by petitioner in the breeding, raising, and training of Hungarian horses for the years 1955-62 are as follows:

Expenses Relating to Cash Bequest and Legacy in Hands of Alien Property Custodian. -- In years prior to 1959, the U.S. Office of Alien Property seized certain property interests of petitioner among which were:

(a) A cash bequest which devolved to petitioner through her father, Anton Sigray, deceased, in the principal amount of $ 25,000 together with interest 1965 U.S. Tax Ct. LEXIS 6">*32 in the amount of $ 7,875 less income taxes paid in the amount of $ 2,362.50, for a total bequest of $ 30,512.50. This property was sequestered under Vesting Order No. 1793.

(b) A legacy of one-third of the residuary estate of Martha K. Evans, deceased, the settlement of which produced a cash payment of $ 20,027.39. This property was sequestered under Vesting Order No. 1195.

The Office of Alien Property released to petitioner all property it had sequestered, including the two cash amounts set forth above, 45 T.C. 261">*273 on or about February 13, 1959. In respect of the administration of these two items, the Office of Alien Property charged petitioner a commission or fee denominated "Administrative Expenses" in the following amounts:

The commission or fee of $ 10,580.48 was paid to the Office of Alien Property by petitioner on or about February 13, 1959.

For legal services rendered in obtaining the release to petitioner from the Office of Alien Property of all property held by it, petitioner incurred and paid a legal fee, on May 25, 1959, to Edward S. St. John, Esq. Of the total legal fee paid to the said 1965 U.S. Tax Ct. LEXIS 6">*33 Edward S. St. John, $ 2,085.61 was allocable to the cash bequest and legacy.

Petitioner deducted in her income tax return for 1959 as an expense the amount of $ 12,666.09 which is the sum of the Office of Alien Property commissions or fees of $ 10,580.48 and the legal fee of $ 2,085.61. The Commissioner disallowed the deduction.

OPINION

1. Horse Expenses. -- During the years in issue, 1955-59, petitioner conducted a horse-breeding operation, using two farms for that purpose, one in Montana and one in Maryland, and continues to do so at the present time. She has sustained substantial losses annually from the operation throughout the entire period. But the mere maintenance of a horse-breeding establishment is not sufficient to assure the deductibility of such losses. Under any of the possibly pertinent provisions of the 1954 Code, ^{11965 U.S. Tax Ct. LEXIS 6">*35} it is necessary that the operation be conducted for the purpose of making a profit. That purpose may in fact exist even in the face of a history of losses unaccompanied 45 T.C. 261">*274 by any gains whatever, but the deductibility of those losses must depend upon the taxpayer's proven intention that he sought to realize a profit. Lamont v. Commissioner, 339 F.2d 3771965 U.S. Tax Ct. LEXIS 6">*34 (C.A. 2); Henry P. White, 23 T.C. 90">23 T.C. 90, affirmed 227 F.2d 779 (C.A. 6), certiorari denied 351 U.S. 939">351 U.S. 939; Doggett v. Burnett, 65 F.2d 191, 194 (C.A.D.C.). Nor is it crucial that the expectation of profit be a reasonable one. It is enough that the taxpayer has a bona fide expectation of realizing a profit irrespective of the reasonableness of his expectation; but a record of continued losses over a series of years or the unlikelihood of achieving a profitable operation may be an important factor bearing on the taxpayer's true intention. Cf. Morton v. Commissioner, 174 F.2d 302, 304 (C.A. 2). On the other hand, the presence of losses in the formative years of a business, particularly one involving the breeding of horses, is not inconsistent with an intention to achieve a later profitable level of operation, bearing in mind, however, that the goal must be to realize a profit on the entire operation, which presupposes not only future net earnings but also sufficient net earnings to recoup the losses which have meanwhile been sustained in the intervening years.

The intention of the taxpayer is a question of fact to be determined upon the record in each case. Morton v. Commissioner, supra at 303. The cases in this field turn upon their own facts and no useful purpose would be served by reviewing the conclusions reached in other cases based upon 1965 U.S. Tax Ct. LEXIS 6">*36 the records made therein. Moreover, it has not been feasible to set forth in our findings all of the extensive evidence in this case, but we are convinced after a careful review of the entire record that petitioner did not conduct her horse-breeding activities in the years before us with the intention of making a profit therefrom.

Although petitioner's horse enterprise has some of the trappings of a business, we think that she did not in fact have a bona fide intention to conduct her activities for a profit. She is a person of considerable wealth, an experienced horsewoman who obviously has a love for horses, particularly Hungarian Half-Breds, which she had raised on her father's estate in Hungary for many years prior to 1946. The U.S. Army had brought a comparatively small number (37) of Hungarian horses to this country after World War II, which it had obtained as spoils of war and which it subsequently (in 1948) undertook to sell. This breed of horses appears to have been hardly known in the United States, and petitioner felt a concern for the "fate" of these horses. Through an agent, she purchased nine brood mares at the Army sale in 1948 at $ 150 each, but it was not until 6 1965 U.S. Tax Ct. LEXIS 6">*37 years later that she began to breed them, using but one stallion for that purpose and subsequently his descendants. She was then plainly interested in continuing the bloodlines of this breed of horses.

45 T.C. 261">*275 Petitioner does not appear to have been concerned with any of the alleged business aspects of the operation. Her testimony was characterized from time to time by ignorance of names, dates, and figures and she showed no apparent interest in them. Indeed, we gained the impression from observation of her during her testimony that figures and financial matters even bored her. We think that she gave little or no thought to whether her horse enterprise would ever be profitable, or whether the large losses that were being sustained annually would ever be recouped. Of course, we may well assume that she would have been pleased to make a profit, but, as we view this record, giving such weight to the testimony as its credibility warrants, petitioner was not engaging in an enterprise for profit. Her rewards consisted of personal satisfaction in the activity. To be sure, enjoyment of one's work is not inconsistent with a profit motive, but we cannot conscientiously find such motive in this 1965 U.S. Tax Ct. LEXIS 6">*38 case.

Petitioner's operation is to be sharply contrasted with that of Mrs. Judith Gyurky, another Hungarian emigree, who, however, appears to have no outside resources. With a herd of comparable size and having been engaged in the activity in this country for a comparable period, ² Mrs. Gyurky has been incurring expenses of some $ 7,000 or $ 8,000 a year and has made a profit. She is in the serious business of making a living, while petitioner, although devoting her energies and long periods of time to the enterprise, has been conducting her horse operation at two farms about 2,000 miles apart, incurring far greater total average expenses, and sustaining large net losses. This is the sort of thing that can be done by a person of means unconcerned with making a profit currently or even ultimately, to say nothing of recouping heavy losses sustained over a substantial period of years. We take a dim view of counsel's suggestion that petitioner's expenses will stabilize at a much lower level in future years, nor do we think that petitioner in fact expects to achieve any such marked decrease in expenses or that receipts from the enterprise will exceed the expenses, or that petitioner 1965 U.S. Tax Ct. LEXIS 6">*39 genuinely expects such receipts to exceed her expenses.

We must decide this case upon our evaluation of the evidence before us, and we cannot find that this petitioner was in the horse-breeding business with a bona fide intention of making a profit. To the contrary, it is our conclusion that she was engaged in these activities because of her love of horses, her interest in the Hungarian Half-Breds, and her desire to establish and perpetuate them as a recognized breed of horses in the United States. Losses thus sustained are not deductible.

45 T.C. 261">*276 2. Alien Property Expenses. -- In 1959, the U.S. Office of Alien Property released to petitioner the following items which it had previously seized:

In connection with these two items, the Office of Alien Property at the same time charged petitioner fees or commissions, referred to as "administrative expenses," in the amount of $ 6,575 and $ 4,005.48, 1965 U.S. Tax Ct. LEXIS 6">*40 respectively. Also, petitioner paid fees in the amount of $ 2,085.61 in 1959 for legal services in obtaining the release of the foregoing bequest and legacy. She claims deductions for these legal fees and administrative expenses under section 212 of the 1954 Code, which provides:

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year --

(1) for the production or collection of income;

(2) for the management, conservation, or maintenance of property held for the production of income; * * *