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Personal investment management does not constitute the
carrying on of a trade or business, irrespective of the extent of
the investments or the amount of time required to perform the
managerial functions. Whipple v. Commissioner, 373 U.S. 193,
199-200 (1963); Higgins v. Commissioner, 312 U.S. 212, 216
(1941); Wilson v. United States, 376 F.2d 280, 293 (1967).
Petitioner’s investment activities, as a whole, are not
sufficient to constitute the carrying on of a trade or business
within the meaning of section 162. Consequently, any deduction
allowable in connection with activities relating to personal
investment management must meet the requirements under section
212. See Commissioner v. Groetzinger, 480 U.S. 23, 30 n.9
(1987).
“Ordinary and Necessary” Expenses Under Section 212
Section 212 allows as a deduction all ordinary and necessary
expenses paid or incurred during the taxable year for the
production or collection of income, or for the management,
conservation, or maintenance of property held for the production
of income. Sec. 212(1) and (2). “Ordinary and necessary” means
that the expenses must be reasonable in amount and must bear a
reasonable and proximate relation to the production or collection
of taxable income. Bingham’s Trust v. Commissioner, 325 U.S.
365, 370 (1945); sec. 1.212-1(d), Income Tax Regs.
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Last modified: May 25, 2011