United States Supreme Court Cases & Opinions

U.S. Supreme Court

Snow v. Commissioner, 416 U.S. 500 (1974)

Snow v. Commissioner of Internal Revenue

No. 73-641

Argued April 16, 1974

Decided May 13, 1974

416 U.S. 500

Syllabus

Petitioner Edwin A. Snow, who had advanced part of the capital in a partnership formed in 1966 to develop a special purpose incinerator and had become a limited partner, was disallowed a deduction under § 174(a)(1) of the Internal Revenue Code of 1954, on his individual income tax return for that year for his pro rata share of the partnership's operating loss. Though there were no sales in 1966, expectations were high and the inventor-partner was giving about a third of his time to the project, an outside engineering firm doing the shopwork. The Tax Court and the Court of Appeals both upheld disallowance of the deduction, which § 174(a)(1) provides for

"experimental expenditures which are paid or incurred by [the taxpayer] during the taxable year in connection with his trade or business as expenses which are not chargeable to capital account."

Held: It was error to disallow the deduction, which was "in connection with" petitioner's trade or business, and the disallowance was contrary to the broad legislative objective of the Congress when it enacted § 174 to provide an economic incentive, especially for small and growing businesses, to engage in the search for new products and new inventions. Pp. 416 U. S. 502-504.

482 F.2d 1029, reversed.

DOUGLAS, J., delivered the opinion of the Court in which all Members joined except STEWART, J., who took no part in the consideration or decision of the case.

Page 416 U. S. 501