Case Name: ROGERS v. UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1930-06-02
Citations: 41 F.2d 865
Docket Number: No. H-411
Parties: ROGERS v. UNITED STATES.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 41
Pages: 865–870

Head Matter:
ROGERS v. UNITED STATES.
No. H-411.
Court of Claims.
June 2, 1930.
LITTLETON, Judge, dissenting.
Harry D. Murray, of Washington, D. C., for plaintiff.
Joseph H. Sheppard, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and WILLIAMS, LITTLETON, and GREEN, Judges.

Opinion:
WILLIAMS, Judge.
The plaintiff in this case sues to recover $2,272.35, which is alleged to be an overpayment of taxes for the years 1922 and 1923.
The plaintiff during the years in question was a practicing physician and surgeon at -Clinton, Okl. He had been located at Clinton for several years and enjoyed a lucrative practice in his profession. For approximately 10 years prior to 1921 the plaintiff from time to time invested the surplus income from his profession in stocks and bonds,i oils, mining, and real estate.
In October, 1920, he purchased 126% shares of stock of the Weatherford Milling Company, an Oklahoma corporation, for which he paid the sum of $36,2-50. The shares purchased by the plaintiff represented one-quarter of 505 shares in the company purchased by the plaintiff and three copurchasers. After the purchase of these shares by the plaintiff and his associates the milling company became involved in financial difficulties. Heavy obligations had been incurred, and the company was facing bankruptcy. Facing this situation and not being in a position to do the refinancing necessary to put the company on a solvent basis, the plaintiff and his copurchasers, who owned practically all the shares of stock, entered into a contract with J. W. Maney and John Maney, whereby it was agreed the said Messrs. Maney would take o-ver and undertake the operation of the company and assume all outstanding liabilities in return for the surrender of the shares of stock then owned by the plaintiff and his three copurchasers. The said agreement was carried out, and in December, 1922, the plaintiff surrendered to Messrs. Maney the 126% shares of stock in the company acquired by bim as aforesaid.
The plaintiff in this transaction suffered a total loss of the amount originally paid by him for the said shares, to wit, $36,250.
In his income tax return for the calendar year 1921 the plaintiff deducted the sum of $5,625 of the loss sustained in the aforesaid stock, in his return for the year 1922 he deducted $12,867, and in his return for the year 1923 he deducted $14,516 of such losses.
The Commissioner of Internal Revenue disallowed the deductions for the years 1922 and 1923, and on December 15, 1925, assessed an additional tax against the plaintiff in the sum of $1,992.82. Thereafter, and on May 13, 1926, the said Commissioner made a further assessment against plaintiff in amount of $279.53, covering interest on the aforesaid additional tax.
On June 4, 1926, plaintiff paid to the collector of internal revenue the amount of the aforesaid assessments, totaling $2,272.35, and, on June 12, 1926, filed a claim for refund thereof, which was rejected on August 27, 1926.
The plaintiff claims he was entitled to the deductions taken by him for the years stated by virtue of the provisions of section 204 (a) and (b) of the Revenue Act of 1921 (42 Stat. 227, 231), which reads:
"See. 204 (a) That as used in this section the term 'net loss' means only net losses resulting from the operation of any trade or business regularly carried on by the taxpayer (including losses sustained from the sale or other disposition of real estate, machinery, and other capital assets, used in the conduct of such trade or business).
"(b) If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeeding taxable year, and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year. "
Article 1601 of Treasury Regulations, No. 62 reads:
"1601. Net losses, definition and computation: The term 'net loss' as used in the statute means only a net loss resulting from the operation during the taxable year of any trade or business regularly carried on by the taxpayer. Included therein are losses from the sale or other disposition of real estate, machinery, and other capital assets used in the conduct of such trade or business. In order to be entitled to claim an allowance for a 'net loss' the taxpayer must have suffered an actual net loss in a trade or business during the taxable year. "
The words "trade or business," as used in the statute in connection with losses, has been held by the courts to mean and refer to a regular occupation or ealling of the taxpayer for the purpose of livelihood of profit. Flint v. Stone Tracy Co., 220 U. S. 107, 171, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312; Allen v. Commonwealth, 188 Mass. 59, 74 N. E. 287, 69 L. R. A. 599.
While it has been recognized and held by the courts and by the Board of Tax Appeals that a person can be engaged in more than one trade or business, and that it is not necessary that the trade or business" in which a deduction is sought forms a taxpayer's principal trade or business, it is required that his activities shall be such that they may of themselves be regarded as an occupation or business. A single isolated activity or transaction is not sufficient to constitute a business or trade. J. J. Harrington, 1 B. T. A. 11; Fridolin Pabst, 6 B. T. A. 843; Harry J. Gutman, 7 B. T. A. 500.
In Mente v. Eisner (C. C. A.) 266 F. 161, 162, 11 A. L. R. 496, the court said:
"We think that the language 'losses incurred in trade' are 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.' "
The plaintiff contends that, aside from following his profession as physician and surgeon, he was also a broker and capitalist, and that the loss sustained in the purchase of the shares of stock in the Weatherford Milling Company resulted from his activities in such avocation.
Section 204 (a) and (b) of the Revenue Act of 1921 provides that a 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 by the taxpayer.
Under the rule that a trade or business regularly carried on must be held to mean a vocation and not occasional or isolated transactions, we are of the opinion the loss sustained by the plaintiff in the transaction involving the purchase of the shares of stock in the Weatherford Milling Company w.as not a loss sustained from the operation of a trade or business regularly carried on by him within the meaning of the statute;
During the year 1920, in which the plaintiff purchased the shares of the Weather-ford Milling Company, he had no other transaction of any kind in stocks and leases, and had no real estate transaction. The purchase of these shares constituted his sole and only transaction as a capitalist and broker.
For the year 1921 he purchased one-half interest in a lease and royalty in Jefferson county, Okl., for the sum of $500. He did not purchase or sell any real estate during the year.
During the year 1922 he made no purchase or sale of stocks or leases, and his activity as a broker and capitalist was confined to the purchase of a 240-aere farm in Dewey county, Okl.
For the three years, 1920,1921, and 1922, aside from the purchase of the shares in the Weatherford Milling Company, the plaintiff engaged in but three transactions in the purchase and sale of stocks, leases, and real estate. This was the extent of his activities in the avocation of broker and capitalist and falls far short of the requirements of section 204 (a) "that as used in this section the term 'net loss' means only net losses resulting from the operation of any trade or business regularly carried on by the taxpayer."
These transactions were undoubtedly merely the occasional investment by the plaintiff of the income derived from his professional practice as a doctor and surgeon. They were isolated transactions and do not constitute the operation of a trade or business regularly carried on by the plaintiff.
In view of our decision that the loss sustained by the plaintiff did not result from the operation of a trade or business regularly carried on by him, it will not be necessary for us to discuss or pass upon the other points raised in the case.
The Commissioner was correct in his ruling denying the deductions sought by the plaintiff and in denying the claim for refund.
Plaintiff's petition is dismissed. It is so ordered.
BOOTn, Chief Justice, and GREEN, Judge, concur.