penditure and not "necessary expenses actually paid in carrying on any business," under Sec. B of the Act of 1913. Laemmle v. Eisner (Ex-Col.), (D. C., S. D. N. Y. 1920) 275 Fed. 504. 126 (c) A lawyer ran a farm for a number of years in connection with his residence on Long Island. There was no evidence as to whether it was run at a profit or at a loss except for two years, when the receipts averaged about $1350 and the expenses averaged approximately $16,000 annually. He was not entitled under Sec. B, Act of 1913, to deduct the expenditures made as "necessary expenses actually paid in carrying on any business.'' The great disproportion be B. [4] That in computing net income for the purpose of the normal tax125 there shall be allowed as deductions: B. [5] First, the necessary expenses actually paid in carrying on any business126 not including tween the receipts and disbursements indicated that he was operating the farm for pleasure and not for profit or gain. Thatcher v. Lowe (Col.), (D. C., S. D. N. Y. 1922) 288 Fed. 994. 126 (d) An individual had a farm of 500 acres, cultivated feed for horses, raised young horses, and had a force of men to care for them and for the farm. He did not reside on the farm but had a personal agent in charge who did reside there. The income consisted of prizes at fairs, purses at race tracks, and proceeds of sales of stock. He kept books of account. He spent considerable time watching his horses at race tracks and at shows. He had conducted these Act of 1924. including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity; SEC. 214. (a) (2) All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title; SEC. 214. (a) (3) Taxes paid. or accrued within the taxable year except (A) income, warprofits, and excess-profits taxes imposed by the authority of the United States, (B) so much of the income, war-profits and excess-profits taxes, imposed by the authority of any foreign country or possession of the United States, as is allowed as a credit under section 222,1 132 (C) taxes assessed against local benefits of a kind tending to increase the value of the property assessed, and (D) taxes imposed upon the taxpayer upon his interest as including a reasonable allowance business, including a reasonable. for salaries or other compensa- allowance for salaries or other tion for personal services actual- compensation for personal servly rendered; traveling expenses ices actually rendered, and in(including the entire amount ex- cluding rentals or other paypended for meals and lodging) ments required to be made as a while away from home in the condition to the continued use or pursuit of a trade or business; possession, for purposes of the and rentals or other payments trade or business, of property to required to be made as a condi- which the taxpayer has not tion to the continued use or pos- taken or is not taking title or in session, for purposes of the trade which he has no equity; or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity; SEC. 214. (a) (2) All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title; SEC. 214. (a) (3) Taxes paid or accrued within the taxable year except (a) income, warprofits, and excess-profits taxes imposed by the authority of the United States, (b) so much of the income, war-profits and excess-profits taxes, imposed by the authority of any foreign country or possession of the United States, as is allowed as a credit under section 222,1 132 (c) taxes assessed against local benefits of a kind tending to increase the value of the property assessed, and (d) taxes imposed upon the taxpayer upon his interest as operations since 1905. Some years showed a profit on which he paid income taxes. Whether he was engaged in business'' under the uncontested facts was a question of law for the court and should not have been submitted to the jury. He was engaged in "business'' so as to be entitled to deduct amounts expended in connection therewith, under Sec. B of the Act of 1913, notwithstanding he might have been a sportsman in the sense that he was fond of racing horses. Wilson v. Eisner (Col.), (C. C. A., Second Cir. 1922) 282 Fed. 39. 127 The provision of the Act of 1913 denying to persons the right to deduct personal, living, or family expenses, such as expenditures for rental and food, Personal, living, or family expenses not deductible Sec. 215. (a), p. 112. SEC. 214. (a) (2) All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917), the interest upon which is wholly exempt from taxation under this title as income to the taxpayer, or, in the case of a nonresident alien individual, the proportion of such interest which the amount of his gross income from sources within the United States bears to the amount of his gross income from all sources within and without the United States; SEC. 214. (a) (3) Taxes paid or accrued within the taxable year imposed (a) by the authority of the United States130 except. income, war-profits, and excessprofits taxes; or (b) by the authority of any of its possessions, except the amount of income, war-profits and excess-profits taxes allowed as a credit under was not wanting in "due process of law," although persons who lived in their own houses or produced their own food were not required to return as income the value thereof, consumed as personal, living, or family expenses. Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1. 128 Title I. Part I, Act of 1916, as amended by Sec. 1201 (1), Title XII, Act of 1917. 129 A state legacy tax, which is a tax upon the testator's right to dispose of his property, and which is deductible from the legacy before the latter vests in the legatee, is not a tax paid by the legatee. Hence it is not deductible from his gross income under the Act of 1913. Prentiss v. Eisner (Col.), (C. C. Act of 1913. Act of 1917. Act of 1916. First. The necessary expenses actually paid in carrying on any personal, living, or family exactually paid in carrying on any business or trade, not including penses;127 business or trade, not including personal, living, or family expersonal, living, or family ex- penses; penses; SEC. 1201. [1] (1) 128 That paragraphs second and third of subdivision (a) of section five of such Act of September eighth, nineteen hundred and sixteen, are hereby amended to read as follows: SEC. 5. (a) "Second. All in- SEC. 5. (a) Second. All interterest paid within the year on est paid within the year on his his indebtedness except on in- indebtedness; debtedness incurred for the purchase of obligations or securities the interest upon which is exempt from taxation as income under this title; B. [6] second, all interest paid within the year by a taxable person on indebtedness; SEC. 5. (a) "Third. Taxes paid SEC. 5. (a) Third. Taxes paid B. [7] third, all national, within the year imposed by the within the year imposed by the State, 129 county, school, and authority of the United States authority of the United States, municipal taxes paid within the (except income and excess prof- or its Territories, or possessions, year, not including those asits taxes) or of its Territories, or any foreign country, or under sessed against local benefits; or possessions, or any foreign the authority of any State, country, or by the authority of county, school district, or municany State.131 county, school dis-ipality, or other taxing subdivitrict, or municipality, or other sion of any State, not including taxing subdivision of any State, those assessed against local benenot including those assessed fits; against local benefits;" A., Second Cir. 1920) 267 Fed. 16, affirming Id., (D. 130 (a) Federal estate taxes imposed by the Act of 1916, which accrued or were paid during the taxable year, were deductible from the gross income of the estate as "taxes paid or accrued' under Sec. 214 (a) (3) of the Act of 1918. U. S. v. Woodward, (1921) 256 U. S. 632, affirming Id., (1921) 56 Ct. Cl. 133. 130 (b) Estate taxes paid under the Act of 1918 were deductible from the income of the estate required to be returned by the fiduciary under Sec. 219 of said Act. They were not deductible from the income of the decedent which accrued between the end of his 241. 131 The New York Transfer Tax which was in effect in 1917 was a tax payable by the estate of a decedent and not by the beneficiaries. Hence, it was deductible by the estate as taxes paid under the Act of 1917. Johnson v. Keith (Ex-Col.), (D. C., E. D. N. Y. 1923) 294 Fed. 964. 132 Sec. 222, p. 158. Act of 1924. shareholder of a corporation, which are paid by the corporation without reimbursement from the taxpayer. For the purpose of this paragraph, estate, inheritance, legacy, and succession taxes accrue on the due date thereof except as otherwise provided by the law of the jurisdiction imposing such taxes; SEC. 214. (a) (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business; shareholder or member of a cor- section 222;132 or (c) by the au- SEC. 214. (a) (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business; SEC. 214. (a) (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business; SEC. 214. (a) (5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; but in the case of a nonresident alien individual only if the profit, if such transaction had resulted in a profit, would be taxable under this title. No deduction shall be allowed under this paragraph for any loss claimed to have been sustained in any sale or other disposition of shares of stock or securities where it appears that within thirty days before or after the date of such sale or other disposition the taxpayer has acquired (otherwise than by SEC. 214. (a) (5) Losses sus- SEC. 214. (a) (5) Losses sustained during the taxable year tained during the taxable year and not compensated for by in- and not compensated for by insurance or otherwise, if incurred surance or otherwise, if incurred in any transaction entered into in any transaction entered into for profit, though not connected for profit, though not connected with the trade or business; but with the trade or business; but in the case of a nonresident alien in the case of a nonresident alien individual only if and to the ex-individual only as to such transtent that the profit, if such actions within the United States; transaction had resulted in a profit, would be taxable under this title. No deduction shall be allowed under this paragraph for any loss claimed to have been sustained in any sale or other disposition of shares of stock or securities made after the passage of this Act where it appears that within thirty days before or after the date of such sale or 133 (a) A taxpayer acquired stock in transactions carried on over a considerable period, which were complicated in character, involved a very large sum of money, and required much time and attention. The stock became worthless and was charged off on the taxpayer's books. This was permissible as a loss "inunder the Act of 1913. Bryce et al. v. Keith (Col.), (D. C., E. D. N. Y. 1919) 257 Fed. 133. Act of 1917. Act of 1916. Act of 1913. SEC. 5. (a) Fourth. [1] Losses actually sustained during the year, incurred in his business or trade, or arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by insurance or otherwise; SEC. 5. (a) Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom; SEC. 5. (a) Fourth. [1] Losses B. [8] fourth, losses actually actually sustained during the sustained during the year, inyear, incurred in his business or curred in trade133 or arising from trade, or arising from fires, fires, storms, or shipwreck, and storms, shipwreck, or other casu- not compensated for by insuralty, and from theft, when such ance or otherwise; losses are not compensated for by insurance or otherwise; SEC. 5. (a) Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom; |