Case Name: Appeal of J. J. HARRINGTON
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1924-10-03
Citations: 1 B.T.A. 11
Docket Number: Docket 11
Parties: Appeal of J. J. HARRINGTON.
Judges: Before James, SteRnhagen, Teammell, and Trtjssell.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 1
Pages: 11–12

Head Matter:
Appeal of J. J. HARRINGTON.
Docket 11.
Submitted September 12, 1924;
decided October 3, 1924.
Willis D. Nance, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.
Before James, SteRnhagen, Teammell, and Trtjssell.

Opinion:
OPINION.
Trammell :
The question arising from the admitted facts is whether the taxpayer is entitled, under the provisions of section 204 of the Revenue Act of 1921, to a deduction in the year 1922 on account of a net loss sustained in 1921.
Section 204(a) of the Revenue Act of 1921 provides in part as follows:
Tbat as used in this section the term " net loss " means only net loss resulting from the operation of any trade or business regularly carried on by the taxpayer.
The question is whether the taxpayer was regularly engaged in the business of dealing in securities in 1921, it being conceded that he suffered a loss on account of the sale of securities in that year.
The expression "in trade" in paragraph (b) of the Revenue Act of 1918, which allowed as a deduction losses actually sustained during the year incurred in trade, and the expression a " trade or business " contained in section 209 of the Revenue Act of 1917, which imposes a profits tax of 8 per cent on trades or businesses having no invested capital, or only a nominal capital, have been defined by the United States District Court in the case of Woods v. Lewellyn, 289 Fed., 498, and by the United States Circuit Court of Appeals in the case of Mente v. Eisner, 266 Fed., 161.
In the case of Mente v. Eisner, supra, the court quoted Treasury Decision 2090 and approved it, stating as follows:
We think that the language " losses incurred in trade " is correctly construed by the Treasury Department as meaning in the actual business of the taxpayer as distinguished from isolated transactions. If it had been intended to permit all losses to be deducted it would have been easy to say so. Some effect must be given to the words " in trade."
In the case of Woods v. Lewellyn, supra, the court referred to and approved article 8 of Regulations No. 41, interpreting section 209 of the 1917 Act, in the following language:
In effect it interprets that section as placing a tax upon the vocation of a man who had done business during the year without invested capital. It taxes only income derived from activities in the exercise of the regular occupation, not sums earned incidentally by activities outside that regular occupation.
The expression trade or business as used in section 204 of the 1921 Act with reference to net losses is more limited and restricted than the word trade as used in the 1913 Act or the expression trade or business as used in the 1917 Act. The statute provides that the loss, in order to be deductible as a net loss, must not only have been incurred from the operation of a trade or business but from a trade or business regularly carried on. A trade or business regularly carried on must be held to mean a vocation and not occasional or isolated transactions.
The loss in this case was not sustained from the operation of a trade or business regularly carried on.