Smith v. Commissioner
Opinion
Memorandum Findings of Fact and Opinion
SCOTT, Judge: Respondent determined a deficiency in petitioner's income tax for the calendar year 1966 in the amount of $298.54.
The issue for decision is whether petitioner during the calendar year 1966 was engaged in the trade or business of operating a dog kennel so as to be entitled to a deduction for expenses or losses of that operation.
Findings of Fact
Some of the facts were orally stipulated and are found accordingly.
Celeste*210 B. Smith, hereinafter referred to as petitioner, resided in Albany, Georgia at the time of the filing of her petition in this case. She filed her individual Federal income tax return for the calendar year 1966 with the district director of internal revenue at Atlanta, Georgia.
During the year 1966, petitioner lived in Albany, Georgia, and was employed as a full-time teacher in the Dougherty County, Georgia School System where she had been teaching for several years.
Petitioner's father had been a veterinarian, and petitioner gained some experience with dogs from working with him.
In 1962, while living in an apartment with other persons, petitioner purchased for $35 a female cocker spaniel as a pet. She had attended dog shows since 1960 but prior to 1966 had not shown any dog. In May 1964 petitioner bought a home and within a month enclosed with wire fencing a 12- by 15-foot space in the yard in which to keep her pet dog. Following the death of her father in January, 1965, petitioner received a little over $2,000 from an insurance policy. After receiving this sum, petitioner decided she was in a position to "operate a little bit more in the dog line." In July 1965 petitioner bought*211 for $100 a 4-month-old cocker spaniel pup from a kennel that showed dogs. The pedigree on this pup was sufficient to permit entry of the dog in shows. Petitioner planned to use this male dog for stud for her female dog and to obtain stud fees for his services to other female dogs. Petitioner had unsuccessfully used three different male dogs in Albany in 1965 in an effort to get some pups from her female dog. This dog was not of the quality that would produce pups petitioner would plan to keep but she planned to sell the pups.
In 1966 petitioner improved the enclosure in her yard with a concrete floor, a covered roof, and walls on two of the four sides. Sleeping boxes for the two dogs were kept in the enclosure. The space was ample for two dogs and possibly could have been used for three dogs. Petitioner was of the opinion that a dog without championship status obtained through wins at shows would bring only $35 to $45 per stud service whereas a dog that had obtained championship status would bring $40 and up per service. Petitioner was also of the opinion that breeders would attend dog shows and observe males that might be available for stud service.
Beginning in January 1966 when*212 her male dog was 9 months old, petitioner exhibited him at various dog shows. He was shown four times in Florida in January, once in Florida and once in Georgia in February, and three times in Georgia in March. In April he was shown once in Richmond and once in Baltimore. The dog was shown five times in Florida in June, three times in South Carolina in July, once in Tennessee in September, and twice in Georgia in November. The shows attended by petitioner were on weekends or holidays and therefore they did not interfere with her work as a teacher. The April shows in Richmond and Baltimore were during 517 petitioner's spring vacation. Petitioner continued to show the dog in 1967 and part of 1968 but the dog was never able to achieve championship status.
Petitioner had no employees to help with the dogs in 1966 and if she were away from home would board the dogs at a kennel.
On at least two occasions during 1966, petitioner advertised the male cocker spaniel as being available for stud. The advertisements were in local newspapers and were run for several consecutive days.
During 1966, petitioner attempted to use the male cocker spaniel in stud on four separate occasions, two*213 of which were with her female dog. On the first attempt the male did not complete his assignment and on the second two attempts the female did not conceive. He was used successfully with petitioner's female cocker spaniel in October resulting in a litter of nine pups born in December. All of the pups were sold as pets in the calendar year 1967 for a total amount of about $400.
In February 1966 petitioner arranged to purchase a female show quality cocker spaniel pup but before the date set for delivery the pup died of distemper.
At some time after 1966 petitioner changed her planned activities with dogs and decided not to keep any male dogs but to keep and breed females and sell the pups. At the time of the trial of this case, petitioner owned three females of breedable age, two of which had completed their championship, one 9-month-old male pup and two 3-month-old male pups which were for sale.
In September 1968 petitioner discovered that the male dog she had bought in July 1965 had a hereditary defect and dropped offering him for stud. Prior to making this discovery petitioner had received three stud fees for his services, two of $30 each and one in the form of a pup she sold*214 for $50.
Petitioner in 1966 kept meticulous records of her receipts and expenses in maintaining the dogs and showing the male. The only revenue reported by petitioner on her 1966 income tax return from her kennel operations was the amount of $19.50, which was received as awards from shows. There was no income derived from stud fees or from the sale of pups in the calendar year 1966. Petitioner had the following expenses which she set forth on her return showing a resultant operating loss of $1,526.26:
| Expense |