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Cowles v. Commissioner

United States Tax Court
T.C. Memo 1970-198 (1970)


Theodore Cowles and his wife (plaintiffs) owned a house in Washington. When Mr. Cowles’s employer transferred him to Illinois, the Cowleses put their house on the market for sale or rental at a price close to their basis in the house. The Cowleses rejected one rental offer because it was too low, and a second rental offer was withdrawn. Two years later, the Cowleses sold the house at far less than their asking price or their basis. The Cowleses sought a tax deduction for their loss, which they contended was incurred in a transaction entered into for profit within the meaning of § 165(c)(2) of the federal tax code. The commissioner of internal revenue (commissioner) (defendant) allowed certain deductions because the house was held for the production of income within the meaning of §§ 212 and 167 of the tax code. However, the commissioner denied the § 165(c)(2) loss deduction because the Cowleses’ mere offer to sell or rent the house did not make the house’s sale a transaction entered into for profit. The commissioner reasoned that, prior to the house’s sale, the house was not rented or otherwise appropriated to income-producing purposes within the meaning of § 1.165-9 of the federal tax regulations. The Cowleses filed a petition challenging the denial of their § 165(c)(2) loss deduction.

Rule of Law


Holding and Reasoning (Tannenwald, J.)

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