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WHIPPLE V. COMMISSIONER, 373 U. S. 193 (1963)

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U.S. Supreme Court

Whipple v. Commissioner, 373 U.S. 193 (1963)

Whipple v. Commissioner

No. 305

Argued March 26-27, 1963

Decided May 13, 1963

373 U.S. 193


Petitioner organized, owned the controlling interest in, and managed several business corporations. One was a bottling company to which he sold on credit bottling equipment owned by him individually, leased a plant built by him on land which he owned individually, and made a loan to pay off other creditors. Its indebtedness to him became worthless in 1953, and he deducted it as a business bad debt in computing his 1953 taxable income. The Commissioner claimed that the debt was a nonbusiness bad debt within the meaning of § 23(k)(4) of the Internal Revenue Code of 1939, as amended in 1942, and assessed deficiencies. The Tax Court determined that petitioner was not in the business of organizing, promoting, managing or financing corporations, of bottling soft drinks, or of general financing and money lending, and it sustained the deficiency. The Court of Appeals affirmed.


1. The 1942 amendment of § 23(k) was designed to make full deductibility of a bad debt turn upon its proximate connection with activities which the tax laws recognized as a "trade or business," a concept which falls far short of reaching every income-producing or profitmaking activity. Pp. 373 U. S. 197-201.

2. Absent substantial additional evidence, furnishing organizational, promotional, and managerial services to corporations for a reward not different from that flowing to an investor in those corporations is not a "trade or business," within the meaning of § 23(k)(4). Pp. 373 U. S. 201-203.

3. The determinations of the Tax Court, affirmed by the Court of Appeals, that petitioner was not engaged in the business of money lending, of financing corporations, of bottling soft drinks or of any combination of these were not clearly erroneous, and they will not be disturbed by this Court. Pp. 373 U. S. 203-204.

4. However, the loss may have been attributable to petitioner's position as the owner and lessor of the real estate and bottling chanroblesvirtualawlibrary

Page 373 U. S. 194

plant in which the corporation did business. Since neither of the Courts below disposed of that possibility, the case is remanded for further proceedings in the Tax Court on that question. Pp. 373 U. S. 204-205.

301 F.2d 108, judgment vacated and cause remanded.

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