[657]*657OPINION.
Sternhagen :
The first question to be answered is whether the activities of the petitioners in respect of their racing and breeding [658]*658stables constituted a business. An affirmative answer carries with it the right to deduct the expenses of their operation1 and the losses sustained.2
The’ evidence establishes that the petitioners were engaged in the business of breeding, buying and selling race horses and entering them in racing contests for gain. They testified that they sought at all times to make a success of the enterprises and that their only measure of success was financial gain. Their horses were purchased as investments, the selective breeding was influenced by the thought of winning stakes and purses, and the disposition of horses was either for profit by sale or for riddance of those not economically useful. These are among the characteristics of business. Wilson v. Eisner, 282 Fed. 38; 2 Am. Fed. Tax Rep. 1744. The fact that petitioners were wealthy enough to afford a hazardous occupation in which they found pleasure despite discouraging losses does not establish the essential nature of the occupation. If they were utterly indifferent to whether there was loss or gain or if it were shown that the stables were an incident to the social or domestic aspects of their daily lives, the result might be against them, as in Thacher v. Lowe, 288 Fed. 994; 2 Am. Fed. Tax Rep. 1931. Instead, it appears that they devoted themselves seriously and assiduously to the economic promotion of their stables always in the hope that profit would result. The winning of a single race or the chance purchase of a yearling might at any time convert steady losses into a net profit, and make it a successful business. The expenses and losses are deductible and the determination of respondent in respect of the first two assignments of error is reversed. This likewise disposes of the third assignment, which is an alternative only and therefore need not be considered.
The second issue presented is whether the petitioners, being beneficiaries of the trusts established by the wills of P. A. B. Widener and George D. Widener, Sr., are each entitled, in the computation of their individual net income, to deduct an aliquot part of the losses and depreciation of the trust estate although the petitioners received from the trust the distribution of income without such deductions. This question has been ruled adversely to petitioners in Baltzell v. Mitchell, 3 Fed. (2d) 428; 5 Am. Fed. Tax. Rep. 5230, certiorari denied, 268 [659]*659U. S. 690; Louise P. V. Whitcomb, 4 B. T. A. 80; Elizabeth M. Abell, 4 B. T. A. 87; Mary P. Eno Steffanson, 1 B. T. A. 979; George M. Studebaker, 2 B. T. A. 1020; Helene R. McConnell, 3 B. T. A. 260; Marguerite T. Whitcomb, 5 B. T. A. 191 (now on review in Court of Appeals, District of Columbia); Sophia G. Coxe, 5 B. T. A. 261; O. Ben Haley, 6 B. T. A. 782; Arthur H. Fleming v. Commissioner, 6 B. T. A. 900; and, as stated in Arthur H. Fleming, supra, the decision in Julia N. DeForest, 4 B. T. A. 1059, is, by reason of its different facts, not a contrary authority. The respondent has allowed the trustee of each estate to deduct the losses and depreciation in computing the net income of the estate, and this is in accordance with the foregoing decisions. The beneficiaries are not entitled to the deductions, and the respondent is on the fourth assignment sustained.
. The last error assigned is that the respondent taxed the petitioners in respect of the entire distributions received by them annually from the income of the two trusts of which they are beneficiaries. Petitioners contend that the value of the expectancy or life interest, the right to receive annual income, was capital to each of them acquired by bequest, and that they are entitled to set aside untaxed the annual distributions until they aggregate this so-called capital sum before taxing any part thereof as income. They say that the expectancy was property clearly capable of valuation, the value of which was substantially agreed upon, and that since this property was expressly bequeathed it is exempt from income tax by sections 213 (b) (3) of the Revenue Acts of 1918 and 19213 here involved; and furthermore, that otherwise the Constitution would be violated.
The distributions in question are, by the terms of the trusts, made only from the income of the trust, and do not invade the corpus. They are not fixed annuities, such as were involved in Ronald DeReuter, 7 B. T. A. 600, to be paid in any event whether from corpus or income. If there be no income of the trust there will be no annual distribution. Nor were they acquired by investment, as the court held in respect of the periodic payments in Warner v. Walsh, 15 Fed. (2d) 368; 6 Am. Fed. Tax Rep. 6340.
The present situation is squarely within Irwin v. Gavit, 268 U. S. 161; 5 Am. Fed. Tax Rep. 5380, and, as in that case, it is not to be supposed that Congress in section 213 (b) (3) intended to restrict [660]*660the scope of the broad intendment of section 213 (a).4 While it may be, so far as the court’s opinion discloses, that no attempt was made by Gavit to establish a value of the expectancy at death, claiming rather that all distributions were in themselves the bequest, nevertheless the reasoning of the opinion gives no warrant for the belief that the decision would have been at all different if such valuation had been fixed in the record. The taxpayer argued that the periodic receipts by him were but the realization of his bequest and hence exempt, and the court held that they were entirely income. The court recognized that the expectancy constituted an interest in the fund itself, and since it had long been recognized (under the 1898 legacy tax act, United States v. Fidelity Trust Co., 222 U. S. 158; Simpson v. United States, 252 U. S. 547; 4 Am. Fed. Tax Rep. 4735) that such interest was property of value subject to death duty (a doctrine prevailing in several of the States) we are compelled to believe that the decision in the Gavit case was reached in the full light of that established law.
These two taxes — the death duty, whether upon the legacy or upon the estate, and the income tax — are wholly different in concept and theory, and the fact that they may impinge upon each other in ultimate incidence by striking at the beneficiary so as to diminish first his inheritance and then his income therefrom, is a legislative matter which Congress has presumably considered. Our present concern is to consider whether the distributions of what is indisputably income of the trust are income to petitioners, and if so, whether as such the statute taxes them or exempts them.
The petitioners argue that, irrespective of the statutory exemption of bequests, the full amount of distributions'is not income because out of such distributions they are entitled to recover, as capital, the value of the right to receive them.
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[657]*657OPINION.
Sternhagen :
The first question to be answered is whether the activities of the petitioners in respect of their racing and breeding [658]*658stables constituted a business. An affirmative answer carries with it the right to deduct the expenses of their operation1 and the losses sustained.2
The’ evidence establishes that the petitioners were engaged in the business of breeding, buying and selling race horses and entering them in racing contests for gain. They testified that they sought at all times to make a success of the enterprises and that their only measure of success was financial gain. Their horses were purchased as investments, the selective breeding was influenced by the thought of winning stakes and purses, and the disposition of horses was either for profit by sale or for riddance of those not economically useful. These are among the characteristics of business. Wilson v. Eisner, 282 Fed. 38; 2 Am. Fed. Tax Rep. 1744. The fact that petitioners were wealthy enough to afford a hazardous occupation in which they found pleasure despite discouraging losses does not establish the essential nature of the occupation. If they were utterly indifferent to whether there was loss or gain or if it were shown that the stables were an incident to the social or domestic aspects of their daily lives, the result might be against them, as in Thacher v. Lowe, 288 Fed. 994; 2 Am. Fed. Tax Rep. 1931. Instead, it appears that they devoted themselves seriously and assiduously to the economic promotion of their stables always in the hope that profit would result. The winning of a single race or the chance purchase of a yearling might at any time convert steady losses into a net profit, and make it a successful business. The expenses and losses are deductible and the determination of respondent in respect of the first two assignments of error is reversed. This likewise disposes of the third assignment, which is an alternative only and therefore need not be considered.
The second issue presented is whether the petitioners, being beneficiaries of the trusts established by the wills of P. A. B. Widener and George D. Widener, Sr., are each entitled, in the computation of their individual net income, to deduct an aliquot part of the losses and depreciation of the trust estate although the petitioners received from the trust the distribution of income without such deductions. This question has been ruled adversely to petitioners in Baltzell v. Mitchell, 3 Fed. (2d) 428; 5 Am. Fed. Tax. Rep. 5230, certiorari denied, 268 [659]*659U. S. 690; Louise P. V. Whitcomb, 4 B. T. A. 80; Elizabeth M. Abell, 4 B. T. A. 87; Mary P. Eno Steffanson, 1 B. T. A. 979; George M. Studebaker, 2 B. T. A. 1020; Helene R. McConnell, 3 B. T. A. 260; Marguerite T. Whitcomb, 5 B. T. A. 191 (now on review in Court of Appeals, District of Columbia); Sophia G. Coxe, 5 B. T. A. 261; O. Ben Haley, 6 B. T. A. 782; Arthur H. Fleming v. Commissioner, 6 B. T. A. 900; and, as stated in Arthur H. Fleming, supra, the decision in Julia N. DeForest, 4 B. T. A. 1059, is, by reason of its different facts, not a contrary authority. The respondent has allowed the trustee of each estate to deduct the losses and depreciation in computing the net income of the estate, and this is in accordance with the foregoing decisions. The beneficiaries are not entitled to the deductions, and the respondent is on the fourth assignment sustained.
. The last error assigned is that the respondent taxed the petitioners in respect of the entire distributions received by them annually from the income of the two trusts of which they are beneficiaries. Petitioners contend that the value of the expectancy or life interest, the right to receive annual income, was capital to each of them acquired by bequest, and that they are entitled to set aside untaxed the annual distributions until they aggregate this so-called capital sum before taxing any part thereof as income. They say that the expectancy was property clearly capable of valuation, the value of which was substantially agreed upon, and that since this property was expressly bequeathed it is exempt from income tax by sections 213 (b) (3) of the Revenue Acts of 1918 and 19213 here involved; and furthermore, that otherwise the Constitution would be violated.
The distributions in question are, by the terms of the trusts, made only from the income of the trust, and do not invade the corpus. They are not fixed annuities, such as were involved in Ronald DeReuter, 7 B. T. A. 600, to be paid in any event whether from corpus or income. If there be no income of the trust there will be no annual distribution. Nor were they acquired by investment, as the court held in respect of the periodic payments in Warner v. Walsh, 15 Fed. (2d) 368; 6 Am. Fed. Tax Rep. 6340.
The present situation is squarely within Irwin v. Gavit, 268 U. S. 161; 5 Am. Fed. Tax Rep. 5380, and, as in that case, it is not to be supposed that Congress in section 213 (b) (3) intended to restrict [660]*660the scope of the broad intendment of section 213 (a).4 While it may be, so far as the court’s opinion discloses, that no attempt was made by Gavit to establish a value of the expectancy at death, claiming rather that all distributions were in themselves the bequest, nevertheless the reasoning of the opinion gives no warrant for the belief that the decision would have been at all different if such valuation had been fixed in the record. The taxpayer argued that the periodic receipts by him were but the realization of his bequest and hence exempt, and the court held that they were entirely income. The court recognized that the expectancy constituted an interest in the fund itself, and since it had long been recognized (under the 1898 legacy tax act, United States v. Fidelity Trust Co., 222 U. S. 158; Simpson v. United States, 252 U. S. 547; 4 Am. Fed. Tax Rep. 4735) that such interest was property of value subject to death duty (a doctrine prevailing in several of the States) we are compelled to believe that the decision in the Gavit case was reached in the full light of that established law.
These two taxes — the death duty, whether upon the legacy or upon the estate, and the income tax — are wholly different in concept and theory, and the fact that they may impinge upon each other in ultimate incidence by striking at the beneficiary so as to diminish first his inheritance and then his income therefrom, is a legislative matter which Congress has presumably considered. Our present concern is to consider whether the distributions of what is indisputably income of the trust are income to petitioners, and if so, whether as such the statute taxes them or exempts them.
The petitioners argue that, irrespective of the statutory exemption of bequests, the full amount of distributions'is not income because out of such distributions they are entitled to recover, as capital, the value of the right to receive them. This is the theory — that because the right had a value which would serve to measure a legacy tax it was capital of petitioners thenceforth, that it is thereafter being diminished, that the diminution is in some way brought about by the distributions of income, that such distributions are the only means to offset the diminution, and hence to the extent of such offset the distributions are a “return of capital.” We may pass the question whether in the true sense this “ right to receive income ” is capital— whether the capital, if any, is not represented only by the interest in [661]*661the fund which produces the income — whether it is not subversive of the entire concept of income to say in turn that a gratuitous right to receive it is capital and hence the realization upon that right is recovery of capital. There is a point of revolt against the tyranny of logic. But suppose it is capital, wherein is it impaired or diminished? It persists in full force. It begins at death as a right to receive income from, and thus an interest in, the fund, and continues throughout in as great a measure as it began. To be sure, the lapse of time affects the probable number of future payments, but how can this change the nature of the payments as income when received? Suppose they were to go on forever, would they be more capital because of longer expectancy, or less capital because beyond the formula of valuation? Nothing invades the interest in the fund and no receipt of the distributable income reduces it — a complete distinction from the situation in Doyle v. Mitchell Bros. Co., 241 U. S. 179; 3 Am. Fed. Tax Rep. 2979, cited by petitioners. Why then should any part of the distributable income be left untaxed, since it takes nothing from the right to receive it? Income it is called in the trust instrument and income it is, and hence within the language and intendment of section 213 (a). This is substantially in accordance with Ernest P. Waud et al., Executors, 6 B. T. A. 871, and with the obiter of Ernest M. Bull, Executor, 7 B. T. A. 993, which in effect . say that income is no less income because it is received pursuant to a preexisting valuable right.
The second question then arises, whether this income is a bequest and hence within the exemption of section 213 (b)(3). This, as already stated, is in our opinion answered in Irwin v. Gavit, supra, to the effect that the income itself is not the bequest, which in our opinion carries with it the decision that the income is not to be limited by reason of a valuation given to the right to receive it. It is, as petitioner contends, established that a testamentary right to the income from a fund is subject to legacy tax and for that purpose is capable of valuation. But this does not bring it within the in-tendment of the exemption of section 213 (b)(3). The Supreme Court in the Gavit case said that that exemption provision “ assumes the gift of a corpus and contrasts it with the income arising from it, but was not intended to exempt income properly so-called simply because of a severance between it and the principal fund. No such conclusion can be drawn from Eisner v. Macomber, 252 U. S. 189; 3 Am. Fed. Tax Rep. 3020. The money was income in the hands of the trustees and we know of nothing in the law that prevented its being paid and received as income by the donee.”
Furthermore, while the section exempts the value of bequests it carefully provides that the income from the bequest is not exempt. [662]*662Here, as we have seen, the distributions are the income from the petitioners’ interest in the fund and are, as such, expressly removed from the exemption.
What has been said is sufficient to demonstrate that the distributions are income under the Constitution as well as under the statute, and that Congress was therefore authorized by the Sixteenth Amendment to tax it as it did. In essence there is a similarity in the argument to that of Bowers v. Taft, 20 Fed. (2d) 561, in that the value of the gift at the time of transfer is said to be capital and as such necessarily to be recovered before finding income. But the Circuit Court of Appeals held that the gain was properly subject to tax to the donee as it would have been to the donor. And in the Gavit case Mr. Justice Holmes seemed to have the same concept when he said that income in the hands of the trustee was taxable when received by the donee.
Petitioners cite Warner v. Walsh, supra. That case is distinguishable for at least one reason, that the court expressly laid it on the ground of a purchased annuity, the consideration for which was the widow’s relinquishment of her fixed and valuable rights. The value of the consideration was a capital investment, which is not the situation here.
, It is our opinion that the full amounts of the distributions are taxable income to petitioners, and the respondent is sustained as to the fifth assignment.
Reviewed by the Board.
Judgment will be entered on 15 days’ notice, under Bule 50.
ARTxndell did not participate.
Smith, Trammell, Trtjssell, Love, and Yah Fossan dissent on the first point.