Higgins v. Commissioner of Internal Revenue, 223.
| Decision Date | 06 May 1940 |
| Docket Number | No. 223.,223. |
| Citation | 111 F.2d 795 |
| Parties | HIGGINS v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Second Circuit |
Duer, Strong & Whitehead, of New York City (Orwill V. W. Hawkins, of New York City, of counsel), for petitioner.
Samuel O. Clark, Asst. Atty. Gen., and Sewall Key and Helen R. Carloss, Sp. Assts. to Atty. Gen., for respondent.
Before L. HAND, AUGUSTUS N. HAND, and PATTERSON, Circuit Judges.
The point presented is whether the petitioner was entitled to deduct, for purposes of income tax, expenses incurred in caring for his investments in securities. He claims that the expenses were a proper deduction as "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business," within the meaning of section 23(a) of the Revenue Act of 1932, 26 U.S.C.A.Int.Rev.Acts page 489. The Board held that the deduction was not allowable.
The facts were found in detail by the Board. They come down to this: the petitioner has a fortune of $35,000,000 or more, part of it in real estate and part in stocks and bonds; he is not engaged in any business, unless the management of his fortune be deemed a business; he maintains an office in New York where several persons in his hire devote their time to supervision of the real estate and to collection of income from real estate and securities, and he also has an office in Paris, where he lives; he gives personal attention to his investments; in the years in question, 1932 and 1933, he did very little in the way of changing investments, making no sales and purchasing only four lots of tax-exempt bonds. In 1932 he paid $76,000 for salaries, rent and other expenses incident to running the offices, and in 1933 he paid $74,000 for similar items. In his income tax returns he claimed a deduction of these amounts from gross income, on the ground that they were expenses in carrying on a business and therefore deductible under section 23(a). The commissioner conceded before the Board that the part allocable to management of the real estate was a proper deduction. The Board found that somewhat more than two-thirds of the expenses were allocable to real estate. No complaint is made as to the allocation. The Board held that the petitioner was not carrying on business in respect to his investments in stocks and bonds and therefore disallowed deduction of that part of the expenses incurred in connection with the management of investments in stocks and bonds. A tax deficiency for each year was determined accordingly.
The statute allows deduction of "the ordinary and necessary expenses paid * * in carrying on...
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