The sun. [volume] (New York [N.Y.]) 1833-1916, 1915-01-26
THAT AMAZING RULING.
Further Departmental Modification Of
the Income Tax Regulations

The subJolned correspondence between
gentleman In New York and the Treasury
Department concerning the rules for com
putting the income tax Is seif-explanatory;
August 90, 1914.
Hon. W. ". osborn, Commissioner Inter
nal Revenue, Treasury Department,
Washington, ID. G.
SIR: My attention has been called to
regulation Of your Department IT. u.
2OO5) which indicates the character of
losses which may be deducted from gross
income subject to the Federal income tax.
! find In the regulation the following
words "Only those losses are deductlble
which are sustained during the tax year
in trade'-that IL, the business which
engages the time. attention and labor OF
any one for the purpose Of livelihood,
proht or Improvement" | find In the
same regulation the following words
Losses sustained by individuals or cor
porations from the sale OF or the deal
ings in personal or real property grow
ing out OF ownership or use Of. or inter-
est in such property, will not he deduct
ible at all. unless they are incident OF,
connected with or grow out OF the bust
ness of the individual or corporation sus-
tanning the loss
Applying these quoted clauses to indl-
viduals, they seem to indicate the idea
that an individual may not deduct from
his gross income any loss sustained by
him, unless that loss was directly Incl
dent TO or connected with his business.
1t seems to follow that a lawyer. physi-
clan, merchant, engineer or salaried man,
TO take few examples. would not be per-
mitted TO deduct an actual loss sustained
through bad investment For Instance,
merchant engaged in the dry goods busI-
ness in the city OF New York might make
an Investment OF the profits previously
made in and withdrawn from his dry goods
business in real estate In the city OF
Chicago and might be forced to sell that
investment at a loss. II Is certainly not
a loss incident to or connected with his
dry goods business In New York. but II
Is nevertheless as real loss'and as legit-
innate a loss as one that might result from
the operations OF his dry goods business.
A salared man might deposit his saw
tngs IN a savings bank and by the failure
OF that bank might incur a loss The
failure OF the bank and the consequent
loss to the deposltor are not incident to
or connected with that depositor's bust
ness, which IL that OF a salaried EN-
ployee OF the United States Government.
let us say. Is his loss any the less a loss
than one he would have suffered II his
employer had failed 10 pay him a part OF
his agreed salary?
Illustrations might be multiplied, but
the above are sufficient
The law permits the individual to de-
.
does not say losses incurred by the indi-
vidual I'm thlsl trade" profession, bust
ness. calling or employment.
The regulation In question apparently
limits the word trade to mean the indi-
viduals trade or calling. profession or
business.
The noun trade" has different mean
ings. among them the rather restricted
one suggested above II has much
broader meaning, and that broader mean
| ing Is doubtless the one Intended TO be
law
Pho Standard Dictionary, Twentieth
Century edition. 1908 (Funk & wagnalls)
defines the noun trade" az follows:
80. Buying or selling for gain or as n
means OF livelihood mercantile traffic
commerce; hence. any Individual bar
gain"
Trade" in its broad sense. which Is the
only sense which may Justly he given TO
the word as used In this law. means
therefore any legitimate bargain that an
individual can enter into. whether that
bargain he a part OF. incident TO or con-
uected with his regular trade, calling
profession or employment or wholly dis
connected herewith.
II a lawyer made in any taxable year
a profit out Of an individual bargain" In
| real estate. that profit would be- taxable rs
part OF his income. but II he made a loss
| on another individual bargain" OF pre-.
| cisely the same character he may not de-
as incident to or connected with the prac-
| ticc Of his profession or trade"
| Is this what the regulation means?
| ! shall value your reply and I remain
Yours very truly,
(Slgned) - -