## Facts

- Margit Sigray Bessenyey, a New York taxpayer with substantial independent means, had lifelong experience with breeding and training Hungarian Half-Bred horses.
- After emigrating to the United States, she acquired Hungarian Half-Bred brood mares (through an agent) and placed them on family ranch property in Montana, later expanding the herd by adding a stallion and more animals.
- Health and family circumstances limited her involvement in early years, but by the mid-1950s she spent significant time in Montana working with the horses.
- She adjusted some practices based on perceived market demand, including increased training after learning American buyers preferred trained animals.
- For tax years 1955–1959, she claimed substantial deductions for losses from the horse-breeding and raising activity.
- The IRS disallowed the losses on the ground that the activity was not conducted as a trade or business or for profit but was personal in nature.
- The Tax Court sustained the disallowance, finding she failed to prove a genuine, predominant profit objective.
- Bessenyey petitioned for appellate review, arguing the Tax Court erred in concluding she lacked a bona fide profit motive.

## Issues

1. Whether Bessenyey’s horse-breeding and raising activity during 1955–1959 was conducted with an actual and honest objective of making a profit so that losses were deductible.
2. Whether the Tax Court clearly erred in its factual finding that the activity was not predominantly profit-motivated.
3. Whether any portions of the claimed loss treatment required modification despite the Tax Court’s core conclusion on profit motive.

## Decision

- The Second Circuit largely affirmed the Tax Court’s determination that the activity was not conducted primarily for profit during the years at issue and that most claimed losses were not deductible.
- The court applied clear-error review to the Tax Court’s profit-motive finding and declined to reweigh credibility or redo the factfinding.
- The court reversed or modified the Tax Court’s disposition in limited respects, requiring some adjustment in treatment of certain aspects of the losses, without disturbing the principal no-profit-motive conclusion.

## Legal Principles

- Losses are deductible only if incurred in a trade or business or in an activity entered into for profit; personal activities are not loss-deductible on that basis.
- Whether an activity is engaged in for profit is a question of fact focused on the taxpayer’s actual and honest profit objective, tested against objective circumstances rather than self-serving statements.
- Objective factors include the manner of operation (businesslike practices, recordkeeping, marketing), the history and magnitude of losses, capital and cost structure, realistic prospects for profit within a reasonable period, the taxpayer’s financial status, and elements of personal pleasure or tradition.
- Appellate review of the Tax Court’s profit-motive finding is for clear error, reflecting deference to the Tax Court’s experience and trial-level evaluation of witnesses.

## Conclusion

The Second Circuit held that the Tax Court did not clearly err in finding that Bessenyey’s horse-breeding operation during 1955–1959 lacked a predominant profit objective, so most losses were not deductible, while directing limited modifications to the Tax Court’s treatment of certain items consistent with the appellate court’s refined analysis.


Bessenyey v. Commissioner, 379 F.2d 252 (2d Cir. 1967)