In this сase the taxpayer Weldon D.. Smith sought restoration of a deduction of $38,220 in his income tax return for 1945 which the Commissioner had disallowed. The taxpayer claimеd this deduction as a-business debt which became worthless during the year as authorized by I.R.C. § 23(k) (1), 26 U.S.C. § 23(k) (1). The Commissioner challenged the deduction on several grounds. A majority of the Tаx Courtsustained the taxpayer’s claim in an opinion by Judge Rice,
A summary of the pertinent findings of fact by the Tax Court will suffice here. Respondent, a resident of Buffalo, N. Y., became interested in 1936 in Llenroc Farm, located on the Canadian side of thе Niagara River and then operated as a dairy farm and for the raising of prize cattle by the Houclt family — a mother and three sons. The Houcks sought someone to assume business management of the farm; and accordingly respondent joined them in January, 1937, in forming a Canadian corporation — Llenroc Farms, Ltd. — of whiсh respondent became treasurer and general manager in addition to being a 20 per cent stockholder. In his managerial capacity, respondent supervised such matters as personnel, purchasing, seeding plans, and crop gathering, attending to these activities in the evenings and on Saturdays and Sundays. Since the new corporation displayed a persistent, if disheartening, propensity to sustain operating losses, respondent extended to it numerous loans which, by 1943, totalled $38,220. In that year the corporation filed a general assignment of its assets for the benefit of creditors, rendering worthless the debt respondent now seeks to deduct.
Aside from this agrarian venture, respondent was interested at one time or another in numerous other business enterprises and had investigated рossibilities of investing in many more. Until January 1, 1945, his regular work day was apparently spent at the offices of Adams, Meldrum & Anderson Co., a Buffalo department store, of whiсh he had been general manager for the preceding ten years, as well as a substantial stockholder. He had also lent money to this company by leaving some of his earnings with it, collecting 6 per cent interest thereon. Another enterprise in which respondent was interested was Adam, Mel-drum & Anderson Cleaning Corp. (not connected with the department store) in which he held 49 per cent of the stock and served as an officer and director until the business was sold in 1944 or 1945; here, tоo, he left some of the salary credited to him with the corporation. In addition, respondent was a stockholder and director of Adam, Mel-drum & Anderson State Bank and of Central Cleaning Plant, both of which merely involved attending board meetings. His other business ventures consisted of a partnership with his brother operating a garage in whose management he participated and to which he lent money; ownership and management of a business building in Buffalo; and, subsequent to 1945, serving as prеsident and manager of the Oliver Gear Works, of which he was a 99 per cent stockholder and where he also left part of his salary to collect interest. Neither the Tax Court’s findings nor the evidence upon which they rest indicate explicitly the extent to which these businesses occupied respondent’s time and аttention during 1945. The majority of the Tax Court found, however, that “Petitioner [respondent here] was in the business of giving financial aid and personal services to business ventures and, therefore, the $38,220 represented a bad debt which arose from a business regularly engaged in by petitioner which became worthless in 1945.”
Whether a particular loss or expense is incurred in a taxpayer’s trade or business is a question of fact in each particular case. Higgins v. C. I. R.,
Although Congress has never defined the term “trade or business,” it is clear that this concept as used in § 23 (k) does not encompass all activities engaged in for profit. The nature and congressional history of the more restricted meaning of “trade or business” is carefully analyzed by Judge Disney in his able dissent in the Tax Cоurt and we need only allude to it briefly here. When in 1942 Congress amended § 23 (k) to pro
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vide for different treatment of nonbusiness bad debts from that accorded such losses whеn incurred in a trade or business,' the committee reports in both houses stated that the determination whether a debt is incurred in a trade or business “is substantially the same аs that which is made for the purpose of ascertaining whether a loss from the type of transaction covered by section 23(e) is ‘incurred in trade or business’ undеr paragraph (1) of that section.” 1942-2 Cum. Bull. 573. Section 23(e), dealing in'general with losses sustained by individuals, explicitly establishes a distinction between' losses incurred in trade оr business and those stemming from “any transaction entered' into for profit, though not connected with the trade or business.” With this guide to the interpretation of § 23 (k), it becomes apparent that Congress did not adopt the broad definition of “business” in Flint v. Stone Tracy Co.,
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U.S. 107, 171,
The cases interpreting the statutory phrase in -particular situations, of сourse do not chart its precise limits, but they do lead us to the conclusion that in the present case respondent’s bad debt loss, was not incurred in any trade or business. The full-time management of one’s investments does not constitute a trade or business. Higgins v. C. I. R., supra. Nor does serving as an officer of a corporation оf' which the taxpayer is a stockholder and creditor. Van Dyke v. C. I. R.,
Accordingly, the decision of the Tax 'Court is reversed for recomputation of the tax in accordance with this opinion.