Opinion ID: 441995
Heading Depth: 2
Heading Rank: 1

Heading: The Business of a Holding Company.

Text: 56 The Government argues that a holding company is not engaged in a business. We think it is clear, however, that the tax meaning of the term business varies with the context in which it is used. Compare Asiatic Petroleum Co. v. Commissioner, 79 F.2d 234 (2d Cir.1935) (pure holding company is engaged in business for purpose of statute authorizing Commissioner to allocate income and deductions among trades or businesses controlled by the same interests) with Goodyear Investment Corp. v. Campbell, 139 F.2d 188 (6th Cir.1943) (holding company not carrying on or doing business for capital stock tax purposes). The Government has simply chosen to rely on those cases that express the meaning of business that suits its purpose on this appeal, without regard to the context in which the meaning was assigned. 31 We find those cases inapposite. 57 As we have said, the important context here, because it defines the boundaries of the narrowest formulation of the Corn Products doctrine, is the business deduction section of the Code. See I.R.C. Sec. 162. For purposes of an ordinary and necessary business deduction, the business of a holding company 58 consists of conserving and protecting its holdings, influencing, or directing when it can, the management of the companies in which it holds stock, so as to increase the value of its holdings and the income to be derived therefrom, the collection of dividends, the advantageous disposition of stocks in companies with whose management it is not satisfied; or where it appears desirable to do so, and reinvesting the proceeds, etc. 59 Allied Chemical Corp. v. United States, 305 F.2d 433, 437 (Ct.Cl.1962) (fees expended by holding company to contest SEC plan to liquidate corporation in which it held stock; held, deductible as ordinary and necessary business expense). See also Alleghany Corp. v. Commissioner, 28 T.C. 298 (1957). Thus, although a holding company does not conduct a business for purposes of the repealed capital stock tax, it need not capitalize all of its expenditures. We think it beyond question that a holding company is entitled to expense its ordinary and necessary costs not linked to the acquisition of specific assets. See generally 1 B. Bittker, Federal Taxation at p 20.4.2. (It is clear ... that the cost of investment advice, custodial services, safe-deposit box rentals, and similar expenses are deductible under IRC Sec. 162 ... even if the [corporate] taxpayer invests only in capital assets and seeks long-term appreciation rather than current yield.). 60 Of course, it is not relevant that investment activities by individual taxpayers may not constitute a trade or business, for the tax law has long distinguished between individuals and corporations in this regard. Compare Whipple v. Commissioner, 373 U.S. 193, 202, 83 S.Ct. 1168, 1174, 10 L.Ed.2d 288 (1963) (investing is not trade or business for purposes of deducting business bad debt) and Higgins v. Commissioner, 312 U.S. 212, 216, 61 S.Ct. 475, 477, 85 L.Ed. 783 (1941) (Management of one's own securities is not a business for purposes of deducting ordinary and necessary expenses) with Allied Chemical Corp., 305 F.2d at 433 (corporation's investment activities constitute business). But see Moller v. United States, 553 F.Supp. 1071, 1 Cl.Ct. 25 (1982) (individuals' investment activities can constitute trade or business where more extensive than those in Higgins ). Higgins, of course, has been legislatively overruled by I.R.C. Sec. 212 which allows deductions by individuals for expenses incurred in activities engaged in for profit. It is, we think, significant that Congress did not find it necessary to include corporations within I.R.C. Sec. 212; the strong implication is that investment activities by a corporation do constitute a trade or business. See 1B Bittker, Federal Taxation at p 20.1.2. (As for corporations, the fact that Congress did not include them in IRC Sec. 212 suggests the possibility that the term 'trade in business' as used by IRC Sec. 162 was thought to be broad enough to embrace a corporation's activities in managing its own investments.). 61