Document: 40 L.Ed.2d 336 94 S.Ct. 1876 416 U.S. 500 Edwin A. SNOW et ux., Petitioners,v.COMMISSIONER OF INTERNAL REVENUE. No. 73—641. Argued April 16, 1974. Decided May 13, Syllabus Petitioner Snow, who had advanced part of the capital in a partnership formed 1966 to develop special-purpose incinerator and become limited partner, was disallowed deduction under § 174(a)(1) Internal Revenue Code 1954, on his individual income tax return for that year pro rata share partnership's operating loss. Though there were no sales 1966, expectations high inventor-partner giving about third time project, an outside engineering firm doing shopwork. The Tax Court Appeals both upheld disallowance deduction, which provides 'experimental expenditures are paid or incurred by (the taxpayer) during taxable connection with trade business as expenses not chargeable account.' Held: It error disallow 'in with' petitioner's business, contrary broad legislative objective Congress when it enacted 174 provide economic incentive, especially small growing businesses, engage search new products inventions. Pp. 502—504. 482 F.2d 1029, reversed. Burgess L. Doan, Cincinnati, Ohio, petitioners. Stuart Smith, Washington, D.C., respondent. Mr. Justice DOUGLAS delivered opinion Court. 1 Section 26 U.S.C. 174(a)(1), allows taxpayer take him Snow (hereafter petitioner) distributive net loss partnership, Burns Investment Company, 1966. United States sustained Commissioner, 58 T.C. 585. Sixth Circuit affirmed, 1029 (1973). case is here writ certiorari because apparent conflict between court Fourth Cleveland v. 297 169 (1961). 2 partner Burns, having contributed $10,000 four-percent interest Burns. general one Trott previously two other partnerships, called Echo, telephone answering device Courier, electronic tape recorder. each these partnerships.1 3 'a special purpose consumer industrial markets.' inventor conceived this idea 1964 then made number prototypes. His patent counsel told 1965 several features burner view patentable but advised whole been sufficiently 'reduced practice' order into marketable product. At point petitioner putting up capital. Thereafter various models built tested. 4 During reported any product high; one-third shopwork.2 5 obtained 1970, currently being produced marketed name Trash-Away.3 6 1954 dilute some conception 'ordinary necessary' 162(a) (then 23(a)(1) 1939) adumbrated Frankfurter concurring Deputy DuPont, 308 488, 499, 60 363, 369, 84 L.Ed. (1940), where he said section question (old 23(a)) 'involves holding one's self out others engaged selling goods services.' words 'trade business' appear, however, different sections Act.4 Those helpful wrote with', more narrowly written than 174, allowing deduction' necessary . carrying business.' That here. 7 history makes fairly clear reasons. Establish firms ongoing continuous programs research quite unlike pioneering enterprises.5 Reed New York, Chairman House Committee Ways Means, even explicit addressed bill:6 8 'Present law contains statutory provision dealing expressly expenses. result has confusion uncertainty. Very often, present businesses developing do have established departments allowed deduct despite fact their large well-established competitors can obtain .. This will greatly stimulate inventions upon future military strength our Nation depends. be particularly valuable businesses.' (Emphasis added.) 9 may at times its wisdom discriminate taxwise kinds old oncoming like. But we would defeat congressional somewhat equalize benefits companies those upcoming reach market perpetuating discrimination created below urged us 10 We read did 'to encourage expenditure experimentation.' F.2d, 173. incentive embedded with,' making irrelevant whether petitioners rich poor. 11 invited explore treatment 'hobby-losses' 183. far afield inquiry profit motive sole drive venture. 12 Reversed. 13 STEWART took consideration decision case. Both Echo Courier claimed development 1966; they challenged apparently stage available sale licensing. Treasury Regulation 1.174—2(a)(2) provides: 'The provisions apply only costs experimentation undertaken directly also carried behalf another person organization (such (an) company, similar contractor) ..' Prior 1970 incorporated produces markets Trash-Away, Board. Saunders, 'Trade Business,' Its Meaning Under Code, U. So. Cal.12th 12th Inst. Fed.Tax. 693 (1960). Hearings H.R. 8300 before Senate Finance, 83d Cong., 2d Sess., pt. 1, p. 105. 100 Cong.Rec. 3425 (1954).

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