During the current year, Benjamin and Valerie were notified that their 2011 tax

return was being audited. The IRS commissioner has disallowed all the losses attributable

to Valerie's cattle breeding and showing.

Valerie was raised on a small ranch where her family raised commercial cattle.

When she was 18, she left to attend college, where she obtained an accounting

degree. Valerie is now employed as a full-time accountant by Veltkamp, Stannebein

& Bateson, a local accounting firm, and receives an annual salary of $45,000. Ben,

a full-time househusband, takes care of their children, Kody and Jaycee.

In 2007, Valerie purchased 10 impregnated purebred Maine Anjou heifers, an

exotic breed of cattle from France, for a total price of $16,375. She entered into a

contract with a local farmer to obtain pastureland for her herd. The contract

requires a payment of $20 a month from April through October for each cow and

calf. From November through March, the cost of feeding each cow and calf is

$1.50 per day. In February 2009, Valerie purchased a bull with an exceptional pedigree

for $7,500 to improve the quality of her calves.

She sells any inferior animals to the meat market, keeps her best heifers for

breeding, and shows her best bull calves in livestock shows. The livestock shows

provide her with the opportunity to show and sell her exotic cattle. Until 2011,

Valerie had been responsible for getting the animals ready to show, which requires

approximately 4 hours per day from November through January. Unfortunately,

Valerie was injured while working with one of her bulls and was forced to pay

someone to finish breaking and showing the bulls. During the summer months,

Valerie pays someone to watch the cattle so she can spend time with her family.

In 2007 and 2008, Valerie realized losses of $4,125 and $1,894, respectively.

In 2009 and 2010, she realized gains of $3,000 and $750, respectively. For 2011,

Valerie realized an operating loss of $1,200 and a casualty loss of $7,500 because

her new bull was struck by lightning and killed. Valerie has maintained adequate

records for all tax years since she began the cattle venture.

Explain whether Valerie's ranching activity is a trade or business.