United States Supreme Court Cases & Opinions

U.S. Supreme Court

Dalton v. Bowers, 287 U.S. 404 (1932)

Dalton v. Bowers

No. 52

Argued November 14, 1932

Decided December 12, 1932

287 U.S. 404

Syllabus

1. Under the Revenue Act of 1924, § 206, a loss not "attributable to the operation of a trade or business regularly carried on by the taxpayer" is not deductible in computing his net income for the year following that in which the loss occurred. P. 287 U. S. 409.

2. As a general rule, for tax purposes, a corporation is an entity distinct from its stockholders. P. 287 U. S. 410.

Page 287 U. S. 405

3. A taxpayer organized a corporation for the purpose of manufacturing and marketing his patented articles. He purchased all of the capital stock, expecting to sell the shares at a profit. He took active charge of the affairs of the corporation, but his individual time was devoted in large part to matters of invention. The corporation's business was unprofitable from the start, and the taxpayer withdrew no money from it. From time to time, he made loans to the corporation to pay its debts and carry on its business, these loans appeared on its books, unpaid; credits were placed to his salary account; the corporation and he filed separate income tax returns; in his personal return he had claimed a reduction on account of bad debts due from it. The business failed, and the corporation was dissolved. In his return for 1925, the taxpayer claimed as a loss deductible for that year the amount paid for the capital stock.

Held:

The loss was not "attributable to the operation of a trade or business regularly carried on by the taxpayer," within the meaning of § 206 of the Revenue Act of 1924, and, having been sustained in 1924, could not be offset against a gain in 1925. Pp. 287 U. S. 409-410.

56 F.2d 16 affirmed.

Certiorari, 286 U.S. 541, to review a judgment which reversed a judgment of the district court in favor of the petitioners here in an action to recover money paid as income taxes.