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Higgins v. Commissioner

United States Supreme Court
312 U.S. 212 (1941)


Higgins (plaintiff) had substantial holdings in both real estate and securities. He set up offices in New York and Paris and hired employees dedicated to overseeing his investments. His staff handled the day-to-day responsibilities related to the investments under Higgins’ close supervision. Their responsibilities included keeping records and collecting interest and dividends. Higgins relied on these offices in this manner for over thirty years. In 1932 and 1933, Higgins deducted the salaries of his employees and other expenditures related to his two offices as ordinary and necessary business expenses. The Commissioner (defendant) disallowed the deductions on the grounds that personal investment activities did not constitute the carrying on of a business. However, the Commissioner conceded to the Board of Tax Appeals that Higgins’ real estate activities constituted a business. The Board of Tax Appeals held that insofar as the expenditures related to Higgins’ real estate, the expenditures were deductible. The activities related to his securities, on the other hand, did not constitute the carrying on of a business and were non-deductible. Accordingly, the Board of Tax Appeals ordered the apportionment of Higgins’ expenses between his real estate and securities operations. The Court of Appeals affirmed. The Supreme Court granted certiorari.

Rule of Law


Holding and Reasoning (Reed, J.)

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