## Facts

- The taxpayer held extensive investments in real estate, bonds, and stocks and personally supervised them.
- He maintained offices and employees in New York and Paris to keep records, receive income, make deposits, and report on holdings under his detailed instructions.
- Purchases and executions were handled through a financial institution, and the taxpayer did not participate in corporate management of issuers whose securities he owned.
- For 1932 and 1933, the taxpayer deducted salaries and office expenses under § 23(a) of the Revenue Act of 1932 as “ordinary and necessary” expenses incurred in “carrying on any trade or business.”
- The Commissioner conceded the taxpayer’s real estate rental operations constituted a business and allowed deductions allocable to that activity.
- After allocating expenses to the real estate business, substantial remaining expenses were attributable solely to managing the taxpayer’s bond and stock investments, which the Commissioner disallowed.

## Issues

1. Whether maintaining offices and staff to manage one’s own bond and stock investments constitutes “carrying on any trade or business” under § 23(a) of the Revenue Act of 1932.
2. Whether expenses must be allocated between deductible real estate business activities and nondeductible personal securities investment management when the same offices and employees serve both.

## Decision

- The Supreme Court affirmed the judgment for the Commissioner.
- Expenses incident to managing the taxpayer’s own securities investments were not deductible under § 23(a) because that activity was not a “trade or business.”
- Expenses attributable to the taxpayer’s real estate rental business were deductible and could be segregated from nondeductible securities-management expenses.

## Legal Principles

- “Ordinary and necessary” expenses are deductible under § 23(a) only if paid or incurred in carrying on a “trade or business.”
- Oversight of one’s own securities portfolio, even if extensive and organized through offices and employees, is investment activity rather than a trade or business for purposes of § 23(a).
- Sporadic or non-uniform administrative rulings in individual cases do not establish a controlling administrative construction, and congressional reenactment does not imply adoption absent long-continued, substantially uniform practice.
- When a taxpayer conducts both a recognized business (such as real estate rentals) and personal investment management using shared resources, expenses may be allocated so only the business-related portion is deductible.

## Conclusion

The Court held that managing one’s own securities investments does not constitute a “trade or business” under § 23(a), so office and salary expenses attributable to that investment management are not deductible, though expenses properly allocable to a separate real estate business may be deducted.


Higgins v. Comm'r of Internal Revenue, 312 U.S. 212 (1941)