*2890 1. As income from sources outside a trade or business serves to reduce the loss from trade or business to reach net loss as defined by section 204, Act of 1921, it is immaterial whether certain endeavors outside a certain trade or business are themselves part of petitioner's trade or business, and whether the trades or businesses, if several, should be separately considered in computing net loss, as the income therefrom reduces net loss in any event.
2. Contributions made in 1921 can not serve to increase the net loss to be carried forward against 1922 income, since contributions are allowable as deductions only where there is net income, under section 214(a)(11) of the Revenue Act of 1921.
*215 This proceeding results from the determination of a deficiency of $11,799.97 in income taxes for the year 1922. The sole error alleged is reduction of a claimed net loss sustained in 1921 and carried forward as a deduction from net income of 1922, the year in question. Respondent not only denies the alleged error but affirmatively avers the net loss should*2891 be further reduced to the extent of certain contributions erroneously allowed in computing the deficiency.
FINDINGS OF FACT.
Petitioner is a citizen of the United States, residing in Denver, Colo. In 1921 petitioner was an active member in two partnerships. One of these, known as Boettcher, Porter & Co., was an investment *216 banking concern engaged in the business of buying and selling securities for others on a commission basis, and for themselves. In the latter branch of the business considerable capital was employed. Petitioner furnished a substantial portion of such capital, held about a one-fourth interest in the business and regularly took an active part in its management. He attended the regular weekly meetings of the members, which lasted about a half day, and was in daily conference in person or by telephone. He was always consulted in all large matters; especially upon loans, because of his banking connections. In 1921 this firm suffered losses, of which petitioner's share amounted to $48,091.20.
Petitioner was likewise in 1921 an active member in a partnership known as Hughes & Dorsey, which was engaged in the general practice of law. This firm's*2892 capital was limited to investments in furniture and law books. Petitioner's share of the net income of such firm for 1921 was $36,672.94.
In the same year, 1921, petitioner received salaries aggregating $3,958.32 as a member of the executive committees of the First National Bank of Denver and the International Trust Co. of Denver, Colo. The services rendered for such compensation were those ordinarily rendered by the members thereof (attendance at short weekly meetings) and did not include legal services.
Petitioner also devoted a part of his time to personal investments. His time was divided between these various endeavors approximately as follows:
| Per cent | |
| Practice of law (Hughes & Dorsey) at least | 50 |
| Investment banking (Boettcher, Porter & Co.) | 20 |
| Executive committees of banks | 4 |
| Personal investments and own matters | Remainder |
On March 15, 1923, petitioner made his return for the calendar year 1922 and paid a tax thereon. In such return petitioner claimed as a deduction, under section 204 of the Revenue Act of 1921, a net loss of $32,493.19 alleged to have been sustained by him in 1921. The net loss was computed by him as follows:
| Year ended December 31, 1921. | ||
| Computation of Net Loss - Section 204. | ||
| A - Deductions allowed by section 214. | ||
| Loss on sale of stocks and bonds | $57,551.50 | |
| Interest | 1,895.52 | |
| Taxes | 1,044.96 | |
| Contributions | 1,256.47 | |
| Miscellaneous | 79.69 | |
| Total | 61,828.14 | |
| (1) The gross income of the taxpayer for the taxable year. | ||
| Salaries | $3,958.32 | |
| Interest | 6,736.84 | |
| Dividends | 20,351.35 | |
| Hughes & Dorsey No. 1 | 625.00 | |
| Hughes & Dorsey No. 2 | 36,047.94 | |
| Boettcher, Porter & Co. Debit | 48,091.20 | |
| Dividends, Boettcher, Porter & Co | 7,933.18 | |
| Interest, Boettcher, Porter & Co | 1,502.02 | |
| 29,063.45 | ||
| (2) The amount by which the interest received free from taxation under this | ||
| title exceeds so much of the interest paid or accrued within the taxable | ||
| year on indebtedness as is not permitted to be deducted by Paragraph 2 of | ||
| Subdivision (a) of Section 214. | ||
| Tax Free Interest | 271.50 | |
| (3) The amount by which the deductible losses not sustained in such trade or | ||
| business exceed the taxable gains or profits not derived from such trade or | ||
| business. | ||
| LOSSES | ||
| Sale of stocks and bonds | 57,551.50 | |
| GAINS | ||
| Salaries | 3,958.32 | |
| Interest | 6,736.84 | |
| Dividends | 20,351.35 | |
| Hughes & Dorsey No. 1 | 625.00 | |
| Hughes & Dorsey No. 2 | 36,047.94 | |
| Total | 67,719.45 | |
| Excess | None. | |
| 29,334.95 | ||
| $61,828.14 | ||
| (4) Amounts Received as Dividends and allowed as deduction under paragraph 6 | ||
| of subdivision (a) of section 234 | None. | |
| (5) ,so much of the depletion deduction allowed with respect to any mine, oil | ||
| or gas well as is based upon discovery value in lieu | ||
| of cost | None. | |
| 29,334.95 | ||
| Net Loss | 32,493.19 |
*2893 *217 The respondent reduced the net loss claimed to $2,029.88, upon the ground that the income from petitioner's law practice as well as his salary for serving on the bank committees, was derived from trade or business, and should therefore he treated as offsetting and reducing the loss sustained in the trade or business of investment banking to determine the net loss as defined in section 204 of the Act of 1921. The respondent would have us further reduce such net loss by *218 $ 1,256.47 (leaving the net loss amount to $773.41) upon the ground that such amount represents a claimed contribution deduction which was erroneously allowed in computing the net loss for 1921 to be carried forward as a deduction in 1922.
Aside from the question raised concerning the contributions, it was agreed that if the income from petitioner's law practice and the compensation paid him for serving on the banking executive committees should not be used to reduce the net loss, then the net loss claimed was correct, while if it should be so used the net loss allowed by the respondent was correct.
OPINION.
SIEFKIN: The agreement between counsel purports only to submit (1) the question*2894 whether as a matter of law a share of the profits realized from a partnership engaged in the practice of law, and compensation paid for services rendered as a member of the executive committees of several banks, represent income derived from a trade or business; and (2) even if it is such income whether it can be used to reduce net losses resulting from a wholly unrelated trade or business.
The issues thus submitted obviously assume that the question, whether certain income earned in 1921 was income from a trade or business within the meaning of section 204, is a material factor in deciding whether a loss sustained in another endeavor should be offset thereby to determine the net loss under section 204. Manifestly such assumption is fallacious under the interpretation of section 204 applied in , in which we held the loss from a trade or business is reduced by gains derived from sources outside the trade or business. See also , which is to the same effect under the 1918 Act.
Under our decision in the Schlesinger case, the question whether the share of the law partnership profits*2895 and/or the compensation for serving on the committees represent income from a trade or business is immaterial as such income serves to reduce the net loss in any event. That is, it makes no difference whether it is a factor in determining the loss from trade or business in the first instance, or is income from outside sources which serves to reduce such trade or business loss to reach net loss. Similarly, it is immaterial whether the trades or businesses, if several, must be separately considered, for even if they must be so considered, the income from each trade or business, as respects the other, would be income from sources outside the trade or business, and as such would serve to reduce such trade or business loss to reach net loss. It follows that the question, whether certain endeavors *219 amount to a trade or business, or several trades or businesses, is a moot question upon which we need express no opinion.
Since section 214(a)(11) of the Revenue Act of 1921 limits the deductions for contributions to 15 per cent of the taxpayer's total net income, and the contributions are for 1921, when there was not net income, it is obvious that the amount of such contributions*2896 can not further increase the net loss to be carried forward against income of 1922. The admitted facts are sufficient to show that the respondent erroneously allowed the contribution in 1921 and that the net loss for 1922 should be reduced by that amount.
Reviewed by the Board.
Judgment will be entered under Rule 50.