*2313 An estate which, during 1921 and 1922, held certain funds, securities, real estate and other assets by virtue of the will of the deceased and the activities of which during such period consisted of the liquidation of such assets and such other activities as are required by law in connection with the administration of an estate, held not engaged in the operation of a trade or business regularly carried on within the meaning of section 204 of the Revenue Act of 1921, and may not deduct from net income for 1922 the amount of net loss sustained for 1921 occasioned by the payment in that year of inheritance taxes to the States of North Dakota and Michigan.
*328 The Commissioner determined a deficiency of $939.67 in income tax for 1922. The facts were stipulated and the only question is whether the estate is entitled under provisions of section 204 of the Revenue Act of 1921 to deduct from income for 1922 net loss for 1921.
FINDINGS OF FACT.
Petitioner is a resident of Drake, N. Dak. During 1921 and 1922 the estate of Harold Thorson held*2314 certain funds, securities, real estate and other assets vested in it for administration under the will of Harold Thorson, deceased. During these years the entire activities of the estate consisted of the liquidation of certain of such assets and the investment of the proceeds of liquidation and of the income therefrom, and such other activities as are required by law in connection with the administration of an estate.
The Commissioner determined a net income for 1921 of $25,593.10 and a deficiency thereon of $3,072.69, with respect to which the estate filed with the Board a petition for redetermination, which was docketed as No. 17666. The net income determined by the Commissioner consisted of the following items of gross income and deductions:
| Gross income: | |
| Income from liquidation of notes receivable valued below par | $1,325.00 |
| Net income from crops of farms rented out on shares | 809.68 |
| Interest on bank deposits, notes, mortgages and bonds | 18,580.42 |
| Rents | 762.50 |
| Profits from sale of real estate | 1,900.00 |
| Profit from sale of securities | 17,991.25 |
| 41,358.85 | |
| Deductions: | |
| Federal estate tax | 1,207.71 |
| Personal property tax | 1,380.00 |
| Real estate taxes | 3,102.77 |
| Interest on legacies | 2,316.91 |
| Interest on inheritance taxes | 1,248.55 |
| Interest on land contract | 23.40 |
| Salaries | 600.00 |
| Revenue stamps | 11.30 |
| Attorneys' fees | 4,699.81 |
| Recording | 73.00 |
| Upkeep of farms | $285.05 |
| Commission on sales | 611.25 |
| Repairs | 130.00 |
| Accountants' fees | 36.00 |
| Sundries | 40.00 |
| 15,765.75 |
*2315 *329 During 1921 petitioner received the following dividends not reported on the return and not included in the foregoing statement:
| Great Northern R.R. Co | $43.75 |
| First National Bank, Minneapolis | 300.00 |
| Great Northern R.R. Co | 43.75 |
| J. P. Morgan Co | 40.25 |
| Northern Securities Co | 4.00 |
| Northwestern Fire & Marine Insurance Co | 100.00 |
| American National Bank | 180.00 |
| J. P. Morgan Co | 40.25 |
| Great Northern R.R. Co | 43.75 |
| J. P. Morgan Co | 40.25 |
| Great Northern R.R. Co | 43.75 |
| Total | 879.75 |
Petitioner received no other taxable income for the year 1921 not heretofore set out, and received no nontaxable income during said year.
On November 22, 1928, the Board entered a decision of no deficiency for 1921 upon a stipulation filed by the parties that there was no tax liability for said year. The stipulation was based upon the allowance, pursuant to section 703 of the Revenue Act of 1928, of a deduction for the year 1921 in the amount of $49,177.50 for inheritance taxes paid to the States of North Dakota and Michigan.
For the calendar year 1922 the estate duly filed an income-tax return showing the following gross income:
| Interest on bank deposits, notes, mortgages, and corporation bonds | $11,072.86 |
| Rents and royalties | 745.00 |
| Profit from sale of real estate, stocks, bonds, etc | 4,707.26 |
| Dividends on stock of domestic corporations | 1,669.75 |
| Notes receivable paid in excess of probate appraisal | 3,126.56 |
| Sale of crops | 325.10 |
| Sale of Hunting License | 10.00 |
| 21,656.53 |
*2316 In the final determination, the Commissioner allowed certain deductions, and determined a deficiency for 1922 on the basis of a net income adjusted in the amount of $14,443.81.
There is no error in income-tax liability for 1922 as determined by the Commissioner unless petitioner is entitled to have net income as determined by the Commissioner reduced by the correct amount of net loss for the year 1921, as contended by petitioner.
*330 OPINION.
LITTLETON: Petitioner relies upon the determination of the Board in . That case involved the right of beneficiaries under section 214 of the Revenue Act of 1921 to deduct from their individual net incomes an operating loss of the trust. The question whether the liquidation and distribution of an estate made might be regarded as an operation of a trade or business regularly carried on was not involved. That case is not authority for the allowance of the claim made by the petitioner in this proceeding.
The will of the decedent is not before us and the facts show no more than that the estate was engaged in the liquidation of the property of the estate and payment of charges, *2317 etc., against the estate under the will. We think this was not the operation of a trade or business regularly carried on within the meaning of section 204 of the Revenue Act of 1921. This section provides:
(a) That as used in this section the term "net loss" means only net losses resulting from the operation of any trade or business regularly carried on by the taxpayer (including losses sustained from the sale or other disposition or real estate, machinery, and other capital assets, used in the conduct of such trade or business); and when so resulting means the excess of the deductions allowed by section 214 or 234, as the case may be, over the sum of the following: (1) the gross income of the taxpayer for the taxable year, (2) the amount by which the interest received 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 or by paragraph (2) of subdivision (a) of section 234, (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, *2318 (4) amounts received as dividends and allowed as a deduction under paragraph (6) of subdivision (a) of section 234, and (5) so much of the depletion deduction allowed with respect to any mine, oil or gas well as is based upon discovery value in lien of cost.
The mere holding of certain assets of the estate, the conversion of some of them into cash, the receipt of rents and interest, and the payment of taxes, interest, expenses, and other charges against the estate pending distribution of the property and liquidation of the estate, can not be denominated as the "operation of a trade or business regularly carried on."
In , the Board stated:
The expression trade or business as used in section 204 of the 1921 Act with reference to net losses is more limited and restricted than the word trade as used in the 1913 Act or the expression trade or business as used in the 1917 Act. The statute provides that the loss, in order to be deductible as a net loss, must not only have been incurred from the operation of a trade or business, *331 but from a trade or business regularly carried on. A trade or business regularly*2319 carried on must be held to mean a vocation and not occasional or isolated transactions.
See, also, .
We are of opinion that upon the facts in this proceeding the Commissioner correctly refused to permit the deduction of the loss of 1921 from income for 1922.
Reviewed by the Board.
Judgment will be entered for the respondent.