Ralph E. Purvis and Patricia Lee Purvis, His Wife v. Commissioner of Internal Revenue

OPINION'

Petitioner appeals a Tax Court decision [reported at 38 T.C.M. 164 (1974)] which found that since his activities during the taxable years 1963-68 did not constitute the “carrying on of a trade or business”, he was not entitled to carry over operating losses under section 172 of the Internal Revenue Code of 1954 [ 26 U.S.C. § 172 ] or to deduct lobbying expenses pursuant to § 162(e) [ 26 U.S.C. § 162 (e)]. We affirm.

The facts of this appeal are not in dispute. Petitioner contends that they would support a finding that he was a trader of securities. Respondent argues that petitioner was merely an investor. Both parties recognize that if petitioner’s activities classify him as an investor rather than a trader, he does not meet the “trade or business” requirement of § 172(d) for loss carry-overs.

Neither the Internal Revenue Code nor the regulations define “trade or business.” The leading case which distinguishes between trading and investing is Higgins v. Commissioner, 312 U.S. 212 , 61 S.Ct. 475 , 85 L.Ed. 783 (1941). There, a taxpayer who resided abroad maintained an office in the United States to handle bookkeeping and other details of his security transactions.…