SHERMAN L. WHIPPLE vs. COMMISSIONER OF CORPORATIONS AND TAXATION. SAME VS. SAME.

SANDERSON, J. In the first bill of exceptions the question presented is whether the complainant appealed from the refusal of the respondent to grant his petition for abatement within the time fixed by law. The respondent sent notice

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of disallowance of the petitions for abatement by registered mail on July 23, 1924, postage prepaid, return receipt requested, addressed to the petitioner at his legal address given in his tax return. The letter was received at that address July 24, 1924; receipted for by a person employed there as a domestic, and apparently the only person in charge at the time, who placed it on the library table with other mail of the petitioner. He came to his residence on one or more nights between July 24, and August 3, but did not notice the letter and it remained unopened until August 11, 1924. The statute requires the commissioner to notify the petitioner of his decision by registered letter, and any person aggrieved by his refusal to abate the tax may appeal therefrom by filing a complaint in the Superior Court within ten days after the notice by the commissioner of his decision. G. L. c. 62, §§ 43, 47. St. 1923, c. 287, § 4. The commissioner gave the notice in the manner required by the statute, and the time within which the taxpayer might file a complaint for abatement was thereby fixed. The fact that the notice was not brought to the complainant's attention in time to file the complaint within the statutory period does not give him an extension of time. See Farquhar v. New England Trust Co. 261 Mass. 209, 215. Inasmuch as the case turns on the language of the section of the statute under which the complaint is brought, neither statutes with different requirements nor decisions based on such statutes are controlling. The decree dismissing the petition because not filed in time was right, and the complainant's exceptions must be overruled.

In the second case the complaint is for abatement of the tax assessed in 1924 on the complainant's income for the calendar year 1923.

The complainant, whose principal business is the practice of the law, lost $27,304.24 during that year in the operation of his farm and sought to deduct from his professional income that sum as a business loss. The commissioner refused to allow the deduction, as the result of which the tax paid was $440.51 more than it would have been if the deduction had been allowed. The judge of the Superior Court decided that

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this loss was a business loss and that the complainant was entitled to the abatement sought.

The estate owned by the complainant, purchased for a summer residence, comprises several hundred acres with the buildings thereon. About the year 1912 he decided to operate a part of the property as a farm, with the belief that he would be able, after bringing the land back to a state of fertility, to till the farm, as distinguished from the residential property, without loss and perhaps at a profit. After experimenting with sheep and abandoning that experiment when found to be unprofitable, he turned his attention to the breeding of Guernsey cattle. Success in this business requires not only pure bred but registered stock, and he undertook to perfect a herd by securing animals of good strain at reasonable prices and then to build up the herd gradually. High prices are obtained for pure bred registered animals which produce a large amount of butter fat and at the same time are of proper form and color, and an owner cannot know whether his experiments in breeding will be successful until a substantial period of time has elapsed. The complainant's early efforts failed to produce the type of animal that would bring the higher prices, a result found to be attributable to the sires. The breeding plans were then changed and heifers are now produced which give promise of being cows of value. His present herd consists of eighty-five to ninety animals. The poultry business and the raising of trout are included as a part of the farm. The evidence was uncontradicted that the latter industry had produced a profit each year, but from the first the farm as a whole has shown an annual loss, which in 1926 and in each of the eight preceding years was in excess of $19,000. The receipts from the farm in 1923 were over $25,000; the largest single item of income being for milk. The complainant has spent a comparatively small part of his time at the farm, but he has at all times employed a superintendent with an agricultural college training, under whom the twenty or more employees work, and he confers with him on important matters of policy, the complainant's orders being final. He has improved the land, introduced pure bred stock, operated a

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dairy and sold some of the animals. Plans have been adopted to reduce losses, eliminate waste and increase efficiency. Accurate farm accounts have been kept similar to those found in an ordinary business enterprise; these are forwarded to and supervised at the complainant's Boston office and the same care is taken with them as if the farm were making a profit. Supplies from the farm used by the complainant or members of his family are charged to him or them at the same prices paid by the general public and all surplus products are sold at regular market prices.

It is apparent from the testimony that efforts have been directed by the complainant toward the production of Guernsey cattle which will be merchantable at high prices. To this end he has devoted a large amount of time and study and has employed recognized business methods such as are usually put forth for the purpose of gain.

The judge ruled that there was evidence upon which it might be found that the losses were incurred in the complainant's trade or business, and that, upon all the evidence, they were so incurred. In support of these conclusions, in addition to the facts already referred to, the judge had the evidence of the complainant to the effect that, if he raised pure bred and high class stock for sale, he would benefit the section by introducing that sort of animal and would benefit himself because he would make a profit out of it; that this would be in line with what was done in England where he had made a special study of the farming industry; that his purpose was to raise the grade of stock that would bring the very high prices, and he believed that this would be a profitable way to do it. He also testified that unless the farm is made to pay under his present superintendent, his pure bred stock will be for sale. Evidence was introduced tending to prove that it is possible to make a financial success of the business of raising for sale Guernsey cattle of the best type.

The judge found that the complainant derives pleasure from the operation of the farm but that his main purpose is not such pleasure; it is, rather, a desire to make the farm a self-supporting enterprise and to raise cattle that will be a

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credit to his efforts; and it is his desire and expectation that, as the result of bis labor and expenditures, he will be able to benefit that part of the public which is interested in the breeding and keeping of a better class of cattle. He also found that the farm had been carried on as a business proposition with the belief on the part of the complainant that ultimately it could be made to be at least self-supporting. We understand this finding, when considered with the evidence upon which it must have been based and with the other findings, to mean that the complainant believed that the income would pay all expenses and also a fair return on the investment in the property devoted to farming; and to that extent, at least, that the finding carries with it the idea of gain or profit. A commercial enterprise in which labor is employed and capital invested could hardly be considered self-supporting unless it produced some return on the capital. The essential characteristics of a farming business were present.

By the terms of G. L. c. 62, §§ 5, 6, income from a business is taxable, and expenses paid within the year in the business may be deducted. The crucial question is whether the complainant in operating the farm as described in the evidence and in the findings of fact was engaged in business as that word is used in the income tax statute. If the loss was incurred in the complainant's business his right to deduct the amount from income is not disputed. Farming is a business within the ordinary meaning of that word. Allen v. Commonwealth, 188 Mass. 59, 61. The fact that a farm has been conducted several years at a loss is a material consideration but not the sole factor in determining whether it is a business enterprise. The inference from such losses - that the farm is not conducted as a trade or business - may be overcome by evidence as to the complainant's intent. "Business" is a word of large signification and is not susceptible of exact definition applicable to all cases. When the purpose of the statutes taxing income is considered, the word "business," as used in the section relating to the deduction of expenses, must be held to refer to an activity which occupies the time, attention and labor of men for the purpose of livelihood,

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profit or gain. See Goddard v. Chaffee, 2 Allen 395; Allen v. Commonwealth, supra; Attorney General v. Boston & Albany Railroad, 233 Mass. 460, 462; Flint v. Tracy Co. 220 U. S. 107, 171; Von Baumbach v. Sargent Land Co. 242 U. S. 503, 515; Smith v. Anderson, 15 Ch. D. 247, 258. It would seem to exclude the right to deduct expenses of a farming enterprise run at a loss where the sole purpose is the pleasure, gratification of a whim of the owner, or even the more altruistic purpose of conferring a benefit on others. See Flint v. Stone Tracy Co., supra; Von Baumbach v. Sargent Land Co., supra. But the mere fact that pleasure may be derived from the business of farming does not destroy its business aspect. Wilson v. Eisner, 282 Fed. Rep. 38. If one of the purposes of the owner is to make the farm show a profit, considerations such as the hope entertained by him that he may be able to demonstrate to others the practicability of scientific farming or the fact that the profession of the law is his principal occupation do not take from the enterprise its character as a business.

The exception saved to the ruling concerning one of the regulations adopted by the respondent has not been argued and is treated as waived.

For reasons already stated, the judge erred in ruling that a farm may be conducted as a trade or business, even though the owner is willing to carry it on without regard to whether the trade or business returns a profit or sustains a loss because of the pleasure derived from it; but the exception to this ruling must be overruled because the findings of fact make it immaterial. The respondent's request that "business" is a word of large signification and denotes that which occupies the time, attention and labor of men for the purpose of a livelihood or profit, although it need not be the sole occupation or employment, was a substantially correct statement of the law, and in the ruling made this request was given in substance, except for a modification which included in the definition of "business" an occupation in which a person is engaged for the purpose or with the hope or expectation of conferring a benefit upon himself or others. For reasons which already sufficiently appear, this part of the definition

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goes beyond the scope of the meaning of the word in the statute. But the exception must be overruled because, upon the facts found, the complainant expected to make a financial gain even though he may have expected other benefits to himself and others. The findings that the farm was run as a business proposition and that the losses were incurred in the business were justified by the evidence. In the conclusion that the complainant is entitled to the abatement sought we find no reversible error of law. The order in each case must be

Exceptions overruled.