- 23 -
In Whipple v. Commissioner, 373 U.S. 193 (1963), the Supreme
Court determined whether loans made by a shareholder to a
corporation, in which he held a substantial interest, were
deductible as business bad debts. In holding that the debts were
not incurred in a trade or business of the taxpayer, the Supreme
Court stated:
Devoting one’s time and energies to the affairs of
a corporation is not of itself, and without more, a
trade or business of the person so engaged. Though
such activities may produce income, profit or gain in
the form of dividends or enhancement in the value of an
investment, this return is distinctive to the process
of investing and is generated by the successful
operation of the corporation’s business as
distinguished from the trade or business of the
taxpayer himself. When the only return is that of an
investor, the taxpayer has not satisfied his burden of
demonstrating that he is engaged in a trade or business
since investing is not a trade or business and the
return to the taxpayer, though substantially the
product of his services, legally arises not from his
own trade or business but from that of the corporation.
Even if the taxpayer demonstrates an independent trade
or business of his own, care must be taken to
distinguish bad debt losses arising from his own
business and those actually arising from activities
peculiar to an investor concerned with, and
participating in, the conduct of the corporate
business.
If full-time service to one corporation does not
alone amount to a trade or business, which it does not,
it is difficult to understand how the same service to
many corporations would suffice. To be sure, the
presence of more than one corporation might lend
support to a finding that the taxpayer was engaged in a
regular course of promoting corporations for a fee or
commission, * * * or for a profit on their sale, * * *
but in such cases there is compensation other than the
normal investor’s return, income received directly for
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011