Docket No. 16284.
Promulgated April 28, 1948.
In 1941 petitioner was the owner of a thoroughbred English setter bird dog which had been well trained. The dog had won three important places in southern field trials and became the subject of much publicity. In 1941 the dog, while out for exercise with his trainer, disappeared and petitioner, although he widely advertised for him as "lost," has never been able to recover him or learn of his whereabouts. Held, petitioner is not entitled to deduct from his gross income under section 23 (e), I. R. C., the cost of the dog, either as a loss incurred in a trade or business, or in a transaction entered into for profit, or as a loss from casualty or theft.
Waddell F. Smith, pro se.
George J. Le Blanc, Esq., for the respondent.
The Commissioner has determined a deficiency in petitioner's income tax of $266.21 for the year 1941. The deficiency is due to the disallowance by the Commissioner of a $1,000 loss deduction which petitioner claimed on his income tax return. The disallowance of the loss deduction is explained in the deficiency notice as follows:
The amount of $1,000.00, representing a loss alleged to have been sustained as the result of the disappearance of a valuable dog owned by you, is not an allowable deduction from gross income under Section 23 (e) of the Internal Revenue Code.
The petitioner by an appropriate assignment of error contests this action of the Commissioner.
FINDINGS OF FACT.
Petitioner temporarily resides in Washington, D.C. The return for the period here involved was filed with the collector for the sixth district of Missouri.
Prior to and until February 16, 1941, petitioner was engaged in the sale of aviation insurance. On that date he discontinued this business and reported for active duty as an officer in the United States Army Air Corps.
The petitioner since 1932 has owned and operated for his own use and for the entertainment of guests a quail preserve of about 8,000 acres in Bullitt County, Alabama. Incident to the quail preserve, petitioner maintained a dog kennel for the breeding, training, and campaigning of field trial bird dogs. With one exception, all of these dogs were English setters and the number of dogs in the kennel, all of which were owned by the petitioner, varied between 12 and 28. The petitioner employed a full time trainer. A home is maintained by the petitioner on this quail preserve, which home petitioner occupies during 3 winter months each year. Those months are the quail-hunting season in Alabama and hunting is one of petitioner's hobbies.
The petitioner has not operated either the quail preserve or the dog kennel as a business for profit. He has never received any income from either source, and has never reported either an operating profit or an operating loss therefrom for income tax purposes. Petitioner has never sold or offered for sale any of the dogs bred in his kennel, nor has he ever boarded any dogs for others.
In the fall of 1935 the petitioner purchased at a cost of $70 an English setter pup which had been whelped on June 7, 1934. This dog was purchased because, due to his blood lines, he appeared to be a prospective prize winner, and, as a matter of fact did develop better and showed more speed, range, and intelligence than other dogs owned by the petitioner. The dog won three important places in the southern field trials and became the subject of much publicity. The prizes received for winning such contests were silver trophies. The dog, which was registered with the American Field Trial Club under the name of "Waddell's Proud Bum," was used by the petitioner in pursuit of his hobby in quail hunting. The petitioner derived no income from the use of the dog for breeding purposes as he wished to keep the blood lines for himself.
The dog, "Waddell's Proud Bum," was entered in the Alabama field trials held on the preserve of A. G. C. Sage, a wealthy New Yorker and a field dog fancier. After winning in those trials on February 22, 1940, the petitioner was informed by a professional handler employed by Sage, whose dogs had previously won the National Bird Dog Championship on three occasions, that Sage liked "Waddell's Proud Bum" very much and wished to buy him. The petitioner "dissuaded him from any further bargaining as he had spent so many years in developing the dog, and money was not of particular interest."
The petitioner was ordered to active duty at Washington, D.C., as an officer of the United States Army Air Corps on February 16, 1941. In driving to Washington, the petitioner made some inquiry and investigation as to a dog trainer with whom he could leave "Waddell's Proud Bum" for continuous exercising and conditioning in anticipation of entering him in the Virginia state spring trials and other eastern trials. One of the trainers recommended to petitioner lived at Trevilians, Virginia. Arrangements were subsequently made with this trainer and the dog was left with him on February 15, 1941.
On February 26, 1941, petitioner learned by telephone that his dog had been taken out for exercise by one of the trainer's handlers and when released had never again been seen. The following day the petitioner made a personal search over a wide area for the dog and notified many farmers, filling stations, and stores in the section, as well as the state police, of the loss of the dog. Notices offering a reward of $25 for information leading to recovery of the dog were posted over an area 30 miles wide. Eight days later, the dog not having been recovered, the reward offered was increased to $100 but no information was received as to the dog's whereabouts.
Petitioner had kept a scrapbook in which he preserved many clippings from newspapers and magazines concerning his dog, and also the scrapbook contained many photographs of the dog taken at different times. After he had determined that in all probability he would never recover his dog, petitioner closed this scrapbook with these words:
This is figuratively the graveyard and tombstone of one of the greatest dogs. To me he is dead, for I do not know where he is, who has him, or if anyone has him.
So it is farewell to "Waddell's Proud Bum," one of the greatest dogs who, because he was great, was done away with so as not to interfere with others not so great.
WADDELL SMITH, Owner and Handler
The dog cost petitioner, including the cost of training him, as much as $1,000. Petitioner does not know whether the dog strayed, became lost, was killed, or was stolen. The dog, being separated from his registered owner, could not have been entered in any field trial competition, and if used for breeding purposes the pups sired by him could not have been registered with the American Field Trial Club.
The loss sustained by reason of the disappearance of petitioner's dog was not a loss incurred in a trade or business, and was not incurred in any transaction entered into for profit. Nor was such loss shown to have resulted from a fire, storm, shipwreck, or other casualty, or from theft.
Petitioner has not filed any brief, but we have considered his case as carefully as if he had.
There is no question but that petitioner has lost a very valuable dog, and we think he has established with reasonable certainty that the dog had cost him, including the cost of training, as much as $1,000. But not every loss is a deductible loss in computing one's taxable net income. If the loss is to be deducted, authority for it must be found in the statute. Section 23 (e) of the Internal Revenue Code is the section of the statute which provides for deduction of losses in certain cases.
SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
* * * * * * *
(e) LOSSES BY INDIVIDUALS. — In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise —
(1) if incurred in trade or business; or
(2) if incurred in any transaction entered into for profit, though not connected with the trade or business; or
(3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate tax purposes in the estate tax return.
The record in this case, we think, rather clearly establishes that the deduction here sought by petitioner is not allowable under the provisions of either section 23 (e) (1) or section 23 (e) (2) of the Internal Revenue Code. The petitioner's testimony indicates that the operation of both the quail preserve and the dog kennels situated thereon was in furtherance of his personal hobby of hunting and was for the personal use of himself and the entertainment of guests. The petitioner has never received any income from the quail preserve, has never boarded dogs for profit, and has never sold or offered for sale any of the dogs raised by him. As a matter of fact, the record shows the petitioner had an opportunity to sell the dog here involved about a year before the dog's disappearance, but he discouraged any negotiations with respect thereto because "money was not of particular interest." Under such circumstances, it can not be said that the loss here under consideration was incurred in a trade or business or in connection with a transaction entered into for profit. See secs. 28.31 and 28.34, vol. 5, Mertens Law of Federal Income Taxation, and the cases there discussed.
The deduction sought by petitioner likewise fails to come within the ambit of section 23 (e) (3) of the code, which provides for the deductibility of uncompensated losses of property not connected with a trade or business, when such losses arise from fires, storms, shipwreck, or other casualty. The petitioner has failed to establish that the loss is due to any of such causes. As a matter of fact, the petitioner does not know what actually happened to his dog. The dog was released for exercise by a handler and was never seen again. The circumstances of the loss fail to qualify it for deduction as an "other casualty," for it has been held that in construing the meaning of that term the rule of ejusdem generis is applicable and in order that a loss may be deductible under this provision it must appear that the casualty was of similar character to a fire, storm, or a shipwreck. J. Fred Hughes, 1 B. T. A. 944.
Was petitioner's loss from theft? He would be clearly entitled to deduct the loss he claims if he has proved that the dog was stolen. But there is no proof sufficient to enable us to make a finding that the dog was stolen. Petitioner in his testimony indicated that he thought the dog had been stolen, but his belief to that effect can not be taken as proof. Petitioner widely advertised the loss of the dog by posters. One of these posters is in evidence. It bears a picture of the dog with this inscription in large letters: "Lost Dog $100 Reward." Then follows a detailed description of the dog.
The writer of this opinion, when he was a much younger man than he is now, lived in a section of Texas where in those days cattle and horses grazed on the open range. Frequently one would turn up missing and the owner would advertise the loss with posters reading "Lost or Stolen," followed by the description of the animal and the offer of a suitable reward for its return. Sometimes the animal would be found and returned and there was great rejoicing reminiscent of the shepherd described in St. Luke's Gospel, who, when he had found his lost sheep, "* * * calleth together his friends and neighbors, saying unto them, Rejoice with me; for I have found my sheep which was lost." At other times the animal was never found, but it could scarcely be maintained that the failure to find the animal would be any satisfactory proof that it had been stolen. Too many other things could happen. So we think we must hold on the facts of the instant case.
If the pictures of "Waddell's Proud Bum" exhibited at the hearing are a true likeness of him, and we have no doubt they are, he would be a tempting prize for someone who was criminal-minded enough to steal a fine dog. We have never seen a more beautiful and intelligent looking dog. But for reasons already stated, we do not feel that the evidence adduced at the hearing will enable us to make a definite finding that the dog was stolen. There is certainly no direct evidence to that effect and the circumstantial evidence is not strong enough to support such a finding. We must, therefore, sustain the Commissioner's determination for lack of evidence to show that it was error.
Decision will be entered for the respondent.