Bessenyey v. Commissioner

Margit Bessenyey (plaintiff) was a wealthy woman of Hungarian descent who had raised Hungarian Half-bred horses on her father’s estate in Hungary before moving to the United States in 1946. Following World War II, the United States Army brought 37 Hungarian horses to the United States, and Bessenyey purchased nine of the horses at a 1948 army sale. Bessenyey eventually began breeding the horses to continue their bloodlines and establish the Hungarian Half-bred as a recognized horse breed in the United States. Bessenyey conducted her horse-breeding operations on farms in Montana and Maryland. Bessenyey was not very concerned with the financial and business aspects of the horse-breeding operations, including the operations’ profitability, but she enjoyed horse-breeding and experienced personal satisfaction from the operations. Between 1955 and 1959, Bessenyey sustained substantial losses from the horse-breeding operations. Bessenyey deducted the losses on her income-tax returns, but the Commissioner of Internal Revenue (the commissioner) (defendant) determined that Bessenyey had improperly deducted the losses and assessed a deficiency. The commissioner asserted that because Bessenyey had not engaged in the horse-breeding operations for the purpose of making a profit, the losses associated with those operations were not deductible. Bessenyey challenged the commissioner’s determination in the United States Tax Court.