Wesley H Warden v. Minister of National Revenue, [1981] CTC 2379, 81 DTC 322

D R Taylor:—This is an appeal heard in the City of Toronto, Ontario, on March 17, 1981 against income tax assessments for the years 1975, 1976 and 1977 in which the Minister of National Revenue disallowed the following amounts claimed by the appellant against his other income which was primarily salary

In assessing the appellant, the respondent relied, inter alia, upon section 3, paragraphs 18(1 )(a), 18(1 )(h) and section 31 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Contentions

In addition to oral testimony, Mr. Warden presented complete and well documented written statements in support of his claim, and to do him justice they are reproduced hereunder:

Mr. Chairman:

Since this is a new experience appearing before a Tax Review Board I ask your indulgence in case my procedure is uncertain at times.

With your permission Mr. Chairman, may I briefly comment on the background leading up to my objections concerning the decision of Revenue Canada to disallow the Rental and Farm operation losses at the Walter’s Falls farm

and

the business losses of Warden Sales.

At the present I am an Elementary School principal for the Scarborough Board of Education.

I am 52 years old and plan to retire June 1984.

As a person who believes in entrepreneurism and retirement planning -l purchased a farm near Lindsay, Ontario in 1972.

Initially the use of the farm land was recreational. The 97 acres was comprised of 30A pasture, 10A bush, 3 acres containing house, barn, orchard, shed and laneway and marshy land.

That summer I had the hay cut and put into my barn. I bought a horse and subsequently it gave birth to a foal.

—I planted 1,000 seedlings.

—Dug a new well to provide water for the barn.

—Cleared 10 acres and planted hay seed.

In a small way this was the beginning of farming. Using the Income Tax guide, Interpretation Bulletins and current information from the Taxation Office, I completed the necessary tax forms that would allow me to claim certain farm losses.

These were allowed by the Taxation Office.

That farm (Hartley, Ontario) was sold June 1974 and in June of 1975, I purchased the Walter’s Falls farm now in question.

I bought the farm to do some farming. This is evidenced by the fact that my offer to purchase contained a fair amount of equipment.

—Ford tractor

—cultivator

—delivery rake

—seed drill

—2 disc harrows

—manure spreader

—three point hitch plough

—binder

—hay wagon, and

—1 set of smoothing harrows

(A copy of the agreement of purchase and sale is attached.)

It is important to note that while I owned this farm I did in fact take on a more definite approach to farming in the true sense.

The farm contained approximately 60A of hay fields and the rest was bush and pasture.

On October 28, 1975, I purchased 6 Charolais heifers and had them bred.

Hay from my farm and special dairy ration (grain) had to be supplied.

Each heifer had a calf and I purchased two shorthorns making a total of 14 cattle.

I allowed my neighbour to house his 20+ stock with mine in my very large barn. The hay was custom harvested and stored in the barn. Almost all the hay was utilized by the cattle over the winter. Hay per bale at that time averaged $1.50.

On January 23, 1976 I inquired into the Ontario Beef Calf Income Stabilization Programme and subsequently joined May 17, 1977.

(See correspondence and Programme Outline.)

To buy, breed, and feed these stockers cost a fair amount.

Veterinary services were called upon, especially when they arrived by truck with shipping fever.

Mr. Chairman, I purchased that farm for $55,000 with a down payment of $20,000. My intentions were to run this farm for profit and upon retirement live there. Buying the farm was certainly not for speculation gain. I could have taken my down payment and put it into short term at 10% and realized a greater profit. The farm was eventually sold in August 1979 for $66,000. This represented an appreciation of $11,000 for 4 years or approximately $2,750 per year. This was not a large profit.

As a teacher with the summers off and various other holidays available in my profession, my family and I were able to work the farm and visit it week-ends. The Original owner, an elderly farmer, was allowed to retain the use of part of the farmhouse and thus the place was never empty. With five bedrooms there was room for all of us.

As previously mentioned, the farm losses for the Hartley Farm were allowed by Revenue Canada.

The department’s decision to disallow the Walter’s Falls Rental Losses is inconsistent.

For the years ’75, ’76, and ’77 my income tax returns indicated no problems. If Revenue Canada had intentions of disallowing my claims, then information should have been sent out forthright.

Joesph Lebovic, President of Urban Development Institute says:—

“While it is society’s obligation to look after the poor, there appears to be a sociological problem developing where some middle class people and professionals are now saying they are also entitled to be subsidized.”

I risked capital to eventually make a profit as in the case of Walter’s Falls and I feel the following took place —

—farm land was not allowed to lie fallow.

—hay was utilized.

—money and services exchanged hands.

—cattle were bought, bred and sold to produce income.

—an Ontario farm and its buildings were maintained and lived in.

The Respondent made the following assumptions and findings of fact:

(a) that in respect of farm rental losses claimed, the appellant’s farming operations and use of the farm were not consistent with the operation of a farm as a business carried on for profit.

Does the group of men reviewing this case realize just what profit is available from a 100A mixed farm in this day and age? Most farmers have two jobs to exist.

From the tables of Agricultural Statistics of Ontario the following information was taken

—in 1977
the average net farm and off farm income in Grey County was	$8,091
—in 1978
the average net farm income was	$1,532
—off farm income	7,371
Total:	$8,903
If we extrapolate to 1981 the net farm income might be
approximately	$11,990

This is information on farm tax filers showing average income from farm and off farm sources by county.

I say to you that my use of the farm was consistent with the operation of a farm as a business carried on for profit.

Admittedly it was a small operation and operating for a few years only, but I don’t think that I was given sufficient time to improve my operation.

On my retirement and leading up to it, my plans to increase operations, namely cattle breeding, would have taken place.

Of course on retirement we would have lived there, continued to improve the farming business and substantiate our eligibility to claim farm losses.

For the respondent to say I had no reasonable expectation of profit is a very final statement.

I would like to know what the respondent’s idea of profit is.

The six Charolais heifers were purchased October 25, 1975 for $6,201 and the net proceeds of their sale on January 24, 1978 was $1,741.92. (Bill of sale attached.) Costs to feed, raise and care for them were factors affecting profit. However, I feel a profit was made and with the acquisition of more herd, a greater profit would be realized. Beef prices were low in 1978 unlike our prices today. The year 1977 is being assessed and does not contain the information regarding the sale of the cattle.

My plans to improve farming business included clearing more land to plant hay fields.

My property contained 20A of scrub bush and this was to be turned into pasture for cattle.

As mentioned, the farm was sold August 1979. It was an agonizing decision to sell so nice a location. However, I was told by Revenue Canada that any future claims for losses would not be allowed and therefore I saw no purpose in trying to run a farm without assistance from the government.

I am amazed at the number of people who are subsidized by the government almost carte blanche and yet a relatively small entrepreneur like myself is penalized. Revenue Canada’s decision in my case, helped influence my sons to decide against farm living.

To operate and keep up the ever increasing expenses of another “principal residence” (as per paragraph 8 of IT-120) involves considerable expense.

The main house and building costs were as follows:

I use 1977 figures to illustrate the costs exclusive of farm operational costs.

Taxes —	$ 304.72
Insurance —	426.00
Mortgage payments —	3,758.16 (monthly payment $313.18)

This represents a considerable outlay of funds bearing in mind the annual rent was a nominal $645.

As mentioned the average net farm and off farm income for 1978 was $8,903.

I believe that upon retirement and taking up residence at Walter’s Falls that my farm operation would exceed the average stated above.

But as I said, it takes time and sufficient time was not allowed.

The decision of Revenue Canada to disallow all losses was certainly not fair.

I respectfully request that my losses be allowed.

And now Mr. Chairman may I turn to the second half of my presentation which deals with the business losses of Warden Sales.

Again, with retirement in mind, I started planning early to build up a small business.

Let me quote you Mr. Guy Lavigueur, President of the Federal Business Development Bank, and what he said concerning small business, January 1980, Toronto Star.

Lavigueur said entrepreneurial issues should be more heavily stressed in the educational system,

“to ensure that the motivation to be independent, creative, self-reliant, dedicated and resourceful, is actively encouraged from the start.”

He also said small business accounts for more than a quarter of Canada’s Gross National Product. He believes small firms haven’t been recognized for their importance to the economy.

Every individual has a right to start a small business but sufficient time must be allowed to build it up to produce profit.

Liberal leader Stuart Smith said Ontario has a reputation for being “the mercantile force of Canada and the place of entrepreneurs”.

(Jan ’80, Toronto Star)

Antiques of any kind have always intrigued me. My mother’s house was a veritable treasure cache.

In 1973 and 1974 I started accumulating antique furniture, bottles, old telephones, Canadian Memorabilia and any interesting objects that could be resold at a profit. Approximately two thousand dollars were spent gathering in my original inventory before I applied for a Vendor’s Permit January 14, 1975.

My auction visits helped me discover my largest supplier of old telephones. This company situated in Millbrook, Ontario and called The Docon Telephone Supplies Ltd. became the biggest source for building up my inventory and providing me with the necessary original parts so important in repairs.

The collection, restoration, repairing and eventually the selling of old phones is rather selective and sophisticated.

However many people have made this big business today.

The attached article taken from the May 1980 issue of The Financial Post explains fairly well the present extent and interest in old phones. Please note that the Antique Telephone Collectors Association in Kansas has 700 members, many of whom are Canadians.

Even with the introduction of modern replicas, many people want the originals or very similar to them. I correspond with two large suppliers, one in Kansas (The Old Telephone Exchange) and one in Tiverton, Ontario (Telephone Repair Service).

At present I have approximately twenty-six phones that have an average selling price of $250.

The following ad was taken from a leading newspaper two years ago

“1932 WOODEN telephone. Northern Electric crank-type in working order, exc. cond. $275

Evgs. 532-5139 1093”

Of course my antique business is comprised of more than telephones. I purchase furniture, china, pictures, etc. and anything that is a collector’s item.

By 1976 I had a fairly large selection of materials for sale.

Since June 1973 to date I have visited approximately 118 auction sales. Some of these visits included individual establishments selling special antiques, telephones and parts.

Please note the attached article from the February 21, 1981 issue of the Toronto Star. It mentions oldtime telephones and restored furniture (ice box). I have such an ice box ready to be restored and sold.

May I include for your perusal some salient features to indicate my true intentions to make this business most viable.

1. subscription to various papers for auction and sale information -

(a) Woodbridge Advertiser

(b) Stouffville Tribune

(c) Toronto Star

(d) Scarborough Mirror

(e) Lindsay Post

(f) Bargain Hunter

2. Printed business cards.

3. Consignment of goods sent to auctioneers.

4. Above average saleable items (telephones) at present in Lakefield Antique Gallery.

5. Purchased a truck in 1974 to assist in my business.

6. Night School Course — Furniture Finishing.

7. I have other items for sale now, bottles, furniture, old farm tools, pictures, etc.

8. Went through proper channels at Revenue Canada to determine how to start a small business.

9. Did not obtain my vendor’s permit until January 1975.

10. Since I plan to retire in 3 years, I will have been planning this business for eleven years. One cannot wait to start a business as soon as you retire. You must plan in advance.

11. I have a good selection of books on old telephones and antiques.

12. My workroom in the basement is filled with phones and parts. I invite any field auditor to visit at any time.

13. I advertise in various papers.

14. I keep up-to-date records.

15. My week-end and summer visits to auctions are done by me alone.

It seems unreasonable to disallow a business any losses in its first year. And that in fact is what you have done. Mr John Cherney, your field auditor, made absolutely no mention that he was considering disallowing the business losses.

I started in 1975 with my vendor’s permit and of course incurred a loss. I feel that I should have been given more time to establish this business and get it to a financial point where it is making a profit. That is my intention.

The following quote recently made by President Elect Reagan is somewhat apropos.

He said it was time to “take inventory” beginning with a limitation on government and a revamping of the tax system to help the entrepreneur.

And on the Canadian scene Richard Needham was recently quoted:

“Taxes are far too high in Canada, so no one has the money to invest. Innovative investment is what creates jobs.”

I realize that these statements could be termed simplistic but they do have a ring of truth in them.

I feel that I have been dealt with unfairly. I seem to have been penalized for attempting to start a business and invest in a farm.

I fail to understand why the government can’t assist the small man on the street As well as medium and large businesses.

With or without your help I shall continue in the antique business since it is of great interest to me. The financial gains can be rewarding and the social contacts with Canadians from all walks of life most enjoyable.

Please reconsider your decision and allow my business losses

Respectfully submitted

by

Wesley H. Warden, B.A., B.P.E., B.Ed.

(Signed) W.H. Warden

While the point was not specifically raised by the appellant at the hearing, counsel for the Minister noted that the appellant had raised as an alternative, at the notice of objection stage of the proceedings, that he be allowed the restricted farm losses.

The position of the respondent was:

— that in respect of the farm rental losses claimed, the appellant’s farming operations and use of the farm were not consistent with the operation of a farm as a business carried on for profit;

— that, in respect of the farm operation, the appellant had no reasonable expectation of profit;

— That in respect of the business losses claimed, the appeallant’s collection and sale of antiques did not constitute the operation of a business carried on for profit.

Evidence

The personal income tax returns for the relevant years showed that the appellant’s main source of income was the salary he received as an employee of the Board of Education of the Borough of Scarborough, Scarborough, Ontario: 1975-$27,228; 1976 - $31,535; 1977-$34,127.

With regard to the antiques, the items were mostly telephones from years past, which the appellant had acquired and restored — but he also had purchased other articles of furniture. He estimated that the 26 restored telephones he had acquired should now be worth about $250 each — approximately $6,500 at selling price. The market was not brisk, but nevertheless there was a growing interest in them from other collectors and individuals. It was noted by the Board that he showed the inventory cost of the antiques at $3,845 as at December 31, 1977 on his financial statements. In 1977 antique sales had been $571, in 1976 $584, and in 1975 $470. The 1976 financial statement filed is typical of the basis upon which the appellant calculated the losses claimed:

WARDEN SALES

STATEMENT OF INCOME AND EXPENSES FOR THE YEAR 1976

Opening Inventory	$1000.00
Purchases	2709.50
Total	$3709.50	3709.50
Inventory for end of 1976	3584.50	125.00 cost of sales
Sales	584.00
Cost of sales	125.00
Gross profit	359.00
Other income — excise tax
gasoline	119.06	478.06 GROSS INCOME
Expenses
Advertising promotion		153.25
Fire and Liability Insurance		13.60
Maintenance and repair (except truck)		93.65
Office expenses — postage, stationery		40.62
Property taxes		*225.54
Telephone — light, heat, water		172.96
Supplies, materials		20.00
Travelling expenses: Montreal, Maritimes,
North and South Ontario		535.17
Truck expenses: (gasoline, insurance, repairs, licence		1,227.26
Other Expenses		139.30
		2,621.35
ADD: Capital Cost Allowance
(please refer to schedule)		1,165.64	3,786.99
Total Expenses
(deduct from gross income)		N/A
Excess of Expenses over Income		3,308.93

A considerable part of the expenses in each year was the result of the apportionment of his own residence expenses for that part which he believed was attributable to the antique business.

For the farm, the situation was similar, but the appellant had not lived on the farm. Two separate sets of financial statements were presented — one dealing with the rental earned from the farm, and the expenses he allocated to that part of his operation; and the other detailed the income from the farm operation, including the balance of all the expenses incurred. Again, 1976 is typical:

STATEMENT OF FARMING INCOME 1976

	WALTER’S FALLS FARM
Sales and Land Rentals		$ Nil
Deduct:
Fertilizer for Lawn	$	6.95
Rental and Repairs (chain saw)		29.40

Gasoline
(auto, Chain saw, tractor,
mower etc.)	24.00
Hay and Feed (livestock)	1,202.70
Livestock	320.00
Tools	38.58
Hay Mowing Costs	275.00
Machinery & Tractor Costs	65.00
Hay Baling costs	196.00
Mailing, advertising, etc.	23.42

For the farm, the situation was similar, but the appellant had not lived on the farm. Two separate sets of financial statements were presented — one dealing with the rental earned from the farm, and the expenses he allocated to that part of his operation; and the other detailed the income from the farm operation, including the balance of all the expenses incurred. Again, 1976 is typical:

STATEMENT OF FARMING INCOME 1976

	WALTER’S FALLS FARM
Sales and Land Rentals			$ Nil
Deduct:
Fertilizer for Lawn	$	6.95
Rental and Repairs (chain saw)		29.40
Gasoline
(auto, chain saw, tractor,
mower etc.)		24.00
Hay and Feed (livestock)	1,202.70
Livestock		320.00
Tools		38.58
Hay Mowing Costs		275.00
Machinery & Tractor Costs		65.00
Hay Baling costs		196.00
Mailing, advertising, etc.		23.42	$2,181.05
		Loss	$2,181.05
Deduct:
Municipal taxes (63.1%)	$ 188.71
Mortgage Interest(63.1%)	2,208.52
Telephone		31.60
Bank service charges		6.00
Stationery		14.57
Miscellaneous		29,16	$2,478.56
	Net Loss		$4,659.61

STATEMENT OF RENTAL INCOME — 1976

	WALTER’S FALLS FARM
Rents received		$ 600.00
EXPENSES:
Municipal taxes (36.9%)	$ 110.35
Mortgage Interest (36.9%)	1,291,52
Insurance	342.30
House repairs:
— roof-eavestroughing	158.57
— windows-paint	16.20
— furnace	15.00
— materials for home	144.37
Barn repairs:
— cement, mix for barn
gangway	315.00	$2,393.31
	Loss	$1,793,31

By 1977, when he sold six of his cattle,the appellant had accumulated a herd of 14 but during the immediately subsequent years, he sold these also and finally sold the farm.

Argument

The appellant presented no income tax jurisprudence in support of his claim but asserted that the Department of National Revenue should not criticize those persons who took a chance and started businesses; that most farmers had to keep another job in order to farm; and that under the circumstances it was reasonable for him to expect consideration and assistance from the government. Basically, his argument with regard to the antiques was the same as that for the farm — while building up his stock and expertise, he was entitled to the income tax reductions claimed.

Counsel for the respondent summarized the position of the appellant with regard to the antiques as that of a dedicated and interested collector looking after his hobby, but certainly without any evidence that the operation during the years in question was dedicated to making a profit. For the farm, counsel noted that there was no basis upon which to conclude that the appellant qualified for the full farming losses as claimed, according to the criteria in William Moldowan v The Queen, [1977] CTC 310; 77 DTC 5213. Further, even accepting for argument’s sake any additional weight which might be placed upon the Minister’s responsibility as noted in the Tax Review Board decision allowing the appeal of Fred L Johnson v MNR, [1978] CTC 2122; 78 DTC 1109, the same evidence could not even support the restricted farm loss claim.* [1] The farm operation was that of a hobby farmer. In any event, as far as the farm was concerned, the rental operation could not be held out as conducted separately for the purpose of profit — there was no possible way it could be profitable, taking into account all the known costs.

Findings

The very fact a loss has been incurred in a taxation year from an operation alleged to be a “business” is a strong reflection against the proposition that there was a reasonable expectation profit. To be successful in an appeal and overcome this obstacle (a loss which he wishes to claim as deductible from “business”), an appellant should provide substantial proof permitting a conclusion that the loss in question was unavoidable under the circumstances pertaining to that year. “Unavoidable” in the sense that his efforts were directed to making a profit in that year, and that the expectation of reaching that objective (a profit) while attainable, simply eluded him. Since those general criteria apply to an established on-going business, then the proof required must be at least as persuasive, in order to claim a loss, when the argument put forward by a taxpayer is that there was no possibility of a profit in a particular year in question. Simply alleging or even demonstrating that circumstances such as “long-range program”, “new business” or “startup costs” accounted for the loss, and made it impossible to show a profit, is not an alternate to proving that there was a reasonable expectation of profit.

I should like to comment on two very critical quotations at 314 and 315, and 5215 and 5216 respectively from Moldowan (supra) which often arise in appeal presentations, and are put forward as “proof” certain that the types of expenses dealt with above are properly deductible as “losses”:

At 314 and 5215 respectively

“One would not expect a farmer who purchases a productive going operation to suffer the same start-up losses as the man who begins a tree farm on raw land.”

At 315 and 5216 respectively

“On the other hand, a man who changes occupational direction and commits his energies and capital to farming as a main expectation of income is not disentitled to deduct the full impact of start-up costs.”

The significant words in both quotations used by the learned Justice are the same — “start-up costs (losses)”. The import of the remarks I have made is simply that it is a fundamental requirement that the costs involved be clearly shown to be “start-up costs”. That designates, as I see it, the existence and demonstration of a systematic and organized program for the earning of profit from a business, and proof that the initial outlays were an integral part of that process, taken into account in the planning, and capable of absorption by the appellant in anticipation of the eventual production of profits. In such a program, an appellant would clearly show that he has consciously decided to write off these start-up costs against a year or years of little or no income, rather than capitalizing them (if some form of asset accumulation is involved), or deferring their deduction until sufficient income is earned in order to absorb them. The absence of such a discernible and comprehensive program upon which to base a claim for deductibility of such losses as “start-up costs” will always put such a claim at considerable risk in my view. The Moldowan (supra) quotations above were made in connection with a “farming business” appeal, and as it may be seen from James R Zavitz v MNR, [1978] CTC 3021; 78 DTC 1730, and from Her Majesty The Queen v James R Zavitz, [1981] CTC 17; 81 DTC 5007, there is a feature about the “business of farming” in which encouragement and flexibility is permitted to a taxpayer in getting established, or in surmounting economic fluctuation — by virtue of the “restricted farm loss provisions” of the Act, which is not permitted to that degree in other business ventures. However, the principle of substantiating the “losses” as “start-up costs” remains the same for any business. The onus remains for a taxpayer to prove the reality and viability of profit, even in the long term. When a taxpayer claims expenses which are in excess of income, then he must assume the difficult task of showing that these “excess” expenses were rational and reasonable — those which a normally wise and prudent main intending to improve, not reduce his financial position, would incur under the circumstances.

The major thrust of this appellant’s presentation (provided earlier), while eloquent and detailed, represents a viewpoint which is unfounded in the jurisprudence as I see it. Expenses in excess of income cannot automatically be claimed by a taxpayer simply because the operation in question has some characteristics of a business venture. The fact that these “business losses” represent added assets or expertise, or may be offset by capital appreciation, thereby increasing the possibility or even potential for profit, does not alter the fundamental burden that faces this taxpayer.

With regard to the antiques, it is evident that the expenses claimed (including travelling), were related almost exclusively to the acquisition, restoration, and retention of the items of telephone equipment purchased. In the financial statements filed which claim the losses, the appellant has made a discreet distinction between the actual outlays for the physical pieces of equipment (telephones, other antiques, etc), which he accumulated and recorded as “inventory”, and the “other expenses” he associated with that ven- ture. The appellant, to support the “long-term” view of profit expectation, contends that he could not sell the restored telephones at a “profit”. In reality, that must be interpreted to mean “if I value my inventory of antiques at only the direct cost to me of the physical materials, then I have (and always have had) a reasonable expectation of profit”. As I see it, it would be just as logical — arguably much more so — to add to the direct cost of the antique purchases, all the indirect costs which have produced his claim for an “operating business loss”, and to regard the total new figure as “inventory”. There is no indication that he could show a profit if everything had been treated that way. In my view, during the years in question, the appellant was acquiring antiques, he was not buying and selling antiques. The few isolated sales do not serve to give the operation the needed characteristics of “trading”. During the specific taxation years in question the appellant had no expectation of profit at all, let alone a reasonable one; and he has not provided any evidence of an organized and systematic program which would lead with virtual certainty to any profit in real terms in the foreseeable future.

Turning to the “farm” situation in this appeal, the above comments applying to the “antique” business of the appellant, apply virtually unchanged to the farm operation. The appellant’s argument that because he was not permitted to deduct the farming losses claimed, he was forced to sell the farm, is not persuasive. The income tax rates applicable to him were such that during the years in question the loss of capital (as he would term it) resulting from the additional income tax to be paid at the most would amount to a few thousand dollars. While this is not negligible, it could hardly be crucial or determinative in any major program such as that upon which he allegedly embarked. A comment is also warranted with regard to the sudden change in assessing procedures by the Department — full loss allowed in previous years reduced to nil in the years in question. Such a situation is unfortunate, but it results in the first instance because the taxpayer has claimed unsupportable deductions in the taxation years in question. The initial incorrect action was not taken by the Minister, it was taken by the appellant in claiming the losses, even if he was doing so in all good conscience.

There is no evidence to indicate a stable, carefully considered and viable program leading to a profitable and productive farming operation within the financial capability of this appellant to achieve. By virtue of the Moldowan judgment (supra), the other elements of his income (salary) eliminate for him the full farming loss deduction, in my view. There is no basis upon which to conclude that his situation parallels in any way those recounted in Zavitz (supra), allowing consideration of the restricted farm loss. There is no requirement for the Board to consider the question of any possible distinction between the “rental” and the “operational” farm losses claimed, both arise from the same fundamental source — the farm property purchased — and in this appeal the losses are inseparable for income tax purposes.

Summary

The Board is conscious of the sentiments expressed by this taxpayer, and recognizes that he has demonstrated considerable motivation and ingenuity to diversify his interests to the degree he has done. Nevertheless, the basis for that diversification and the taxing results which flow therefrom are personal, not business, according to the jurisprudence as I read it. He has failed in the task of demonstrating a reasonable expectation of profit in either the “antique” or the “farm” operations sufficient to justify even over the long term the income tax treatment sought during the years in question.

Decision

The appeal is dismissed.

Appeal dismissed.