## Facts

- Joseph A. and Dorothy D. Moller were individual taxpayers whose primary support came from income generated by four stock-and-bond portfolios (two owned individually and two held in trust but fully controlled by them).
- In 1976 and 1977, each taxpayer devoted about 40–42 hours per week to investment management, kept regular office hours, monitored market activity daily, and made all investment decisions personally.
- The portfolios were substantial, valued at approximately $13.5 million (1976) and $14.5 million (1977).
- The Mollers maintained detailed records, used a watch list, and relied on multiple financial publications and services.
- Their activity included numerous purchases and sales, but the appellate court treated several items included below as non-market events (e.g., trust deposits, stock splits/dividends), reducing the count of market purchases and sales.
- Securities sold during the relevant years had relatively long average holding periods (more than about 3⅓ years for 1976 sales and about 8 years for 1977 sales).
- The IRS disallowed deductions for home-office expenses claimed under I.R.C. § 280A for 1976 and 1977, asserting that managing personal investments was not a “trade or business.”
- After paying the assessed deficiencies, the Mollers sued for a refund; the Claims Court allowed the deductions, treating them as active investors engaged in a trade or business of making investments.

## Issues

1. Whether taxpayers who manage their own investment portfolios on a full-time basis are engaged in a “trade or business” for purposes of I.R.C. § 280A.
2. Whether, absent a “trade or business,” home-office expenses used regularly and exclusively for investment activity are deductible under I.R.C. § 280A.

## Decision

- The Federal Circuit reversed the Claims Court.
- The court held that the Mollers’ investment management activities did not constitute a “trade or business.”
- Because § 280A requires that a home office be the principal place of a “trade or business,” the home-office deductions were disallowed for 1976 and 1977.
- The government prevailed on appeal and no refund was permitted on the claimed home-office theory.

## Legal Principles

- Managing one’s own investments, even extensively and continuously, does not by itself amount to carrying on a “trade or business” for federal tax purposes.
- The investor/trader distinction turns on the character of the activity; long-term holding patterns and income chiefly from interest and dividends indicate investor status rather than a trading business.
- The extent of organization, time commitment, and sophistication (regular hours, daily monitoring, research, detailed recordkeeping) does not convert personal investment management into a trade or business.
- I.R.C. § 280A permits home-office deductions only when the space is used regularly and exclusively as the principal place of business of a qualifying trade or business; satisfying exclusive and regular use is insufficient if the activity is not a trade or business.
- Supreme Court precedent recognizing that personal investment management is not a trade or business governs the analysis and limits business-deduction treatment for such activities.

## Conclusion

The court held that full-time, organized management of substantial personal investment portfolios remains investor activity rather than a trade or business; therefore, the taxpayers could not deduct home-office expenses under I.R.C. § 280A for the years at issue.


Moller v. United States, 721 F.2d 810 (Fed. Cir. 1983)