*269 Decision will be entered under Rule 50.
Petitioner, a nonresident alien, empowered his brother, who resided in the United States, to deal in commodity futures at his own discretion through resident brokers in the United States for petitioner's account. Petitioner's brother exercised this authority in 1940 and 1941, trading in substantial amounts. Held, petitioner was engaged in trade or business in the United States and is taxable as a nonresident alien so engaged; held, further, that the petitioner is entitled to a net short term capital loss carry-over from 1940 to 1941.
*273 The primary issue here is whether petitioner, a nonresident alien, was engaged in trade or business in the United States or had an office or place of business in the United States in 1941. If so, the further issues arise as to whether he may deduct certain losses in computing his 1941 net capital gain. The respondent determined a deficiency of $ 124,598.54, and by his answer to the second amended petition he *274 claims an additional deficiency of $ 8,634.09. In his second amended petition, the petitioner claims an overpayment of $ 550. At the hearing the petitioner conceded that a*271 deficiency resulted and on the brief requests a determination that the deficiency is $ 563.83.
FINDINGS OF FACT.
The petitioner is a national of Egypt who went to France in May 1940 and resided in France through the taxable year 1941. He has never been a resident of the United States nor a resident of North, South, or Central America or of the West Indies or of the Hawaiian Islands.
The petitioner made some trades in commodities on commodity exchanges in the United States through resident brokers during and prior to the taxable year, trading in cotton, wool, grains, silk, hides, and copper.
In August 1939 the petitioner discussed with his brother, Joseph Adda, who intended to visit the United States, the possibility that war might affect the petitioner's ability to communicate with his brokers in the United States and authorized Joseph Adda, in case of such an interruption of communications, to act for the petitioner in placing orders for the purchase or sale of commodities. The petitioner outlined to his brother the general trading policy which he desired to have followed. The petitioner told Joseph Adda he had credits with the firms of George H. McFadden & Bro., George F. Jones*272 & Son, and Bond, McEnany & Co., and asked Joseph Adda to advance the necessary funds if the market went against him and he could not forward money. On February 15, 1940, the petitioner wrote from Alexandria, Egypt, to the firm of Geo. H. McFadden & Bro. as follows:
You are to consider this letter your full authority to accept orders in commodity futures from Mr. Joseph A. Adda and to enter any resultant trades in an account to be known as "Fernand C. A. Adda, a/c Joseph A. Adda". It is hereby understood that I assume full moral and financial responsibility for this account in the same manner as all other accounts standing in my name on your books. I also hereby confirm that all trades already entered in "Fernand C. A. Adda, a/c Joseph A. Adda" on orders of Mr. Joseph A. Adda also have my approval and guarantee.
You are hereby also advised that all formal confirmations covering trades executed on orders from Mr. Joseph A. Adda and placed in "Fernand C. A. Adda, a/c Joseph A. Adda" are to be forwarded to Mr. Joseph A. Adda, who has my authority to approve same. Likewise all liquidation statements, and all other accounting records in connection with this account are to be forwarded*273 to Mr. Joseph A. Adda.
You are also to consider this letter your full authority to transfer from any of my other accounts with you such funds as in your opinion are necessary to properly protect the account designated as "Fernand C. A. Adda, a/c Joseph A. Adda". In addition you are authorized to make payments to Mr. Joseph A. Adda or to anyone else he may designate, without any further approval on my *275 part, and to charge such payment or payments to such of my accounts as seem proper to you.
The petitioner fell into the hands of the Germans in France in December 1940. While under surveillance in a hospital the petitioner sent a message, dated January 27, 1941, to Bond, McEnany & Co. to accept instructions of Joseph Adda regarding the petitioner's accounts.
During the taxable year 1940 the petitioner owned certain securities in the United States from which he received dividends and interest constituting net income from sources within the United States in the amount of $ 16,024.07, upon which tax was paid at the source. During such year the petitioner was trading in commodities by direct orders to brokers within the United States, which resulted in gains in excess of losses*274 in the amount of $ 139,847.64. In the same year transactions effected by Joseph Adda for the petitioner's account with brokers in the United States resulted in losses in excess of gains in the amount of $ 180,208.79, the net loss from all these transactions amounting to $ 40,361.15. During 1940 the petitioner also realized a short term capital gain of $ 27.05 from the sale of Government of Norway bonds in a custodian account in the Guaranty Trust Co. of New York, carried in the name of Victor A. Adda and/or Joseph A. Adda, in which the petitioner had a one-third interest. The petitioner had no other capital gains in the United States in 1940.
During the taxable year 1941, on account of conditions brought on by the war, the petitioner was cut off part of the time from satisfactory means of communication with his brokers or his brother in the United States. He was able to send some direct orders to brokers in the United States, from which transactions he sustained losses in excess of gains in the amount of $ 12,782.67. Such losses were not considered by the respondent in the computation of the deficiency determined herein. Commodities transactions were effected for his account*275 by his brother, Joseph Adda, then a resident of New York, New York, which resulted in gains in excess of losses in the amount of $ 193,857.14.
Joseph Adda was not compensated by the petitioner for his services in effecting transactions in commodities in 1940 and 1941. The petitioner gave Joseph Adda full and complete authority in dealing for the petitioner in commodities to use his own discretion and judgment as to when to buy or sell for the petitioner's account and the prices at which the sales or purchases were to be made.
The petitioner, during 1940 and 1941, was a nonresident alien engaged in trade or business in the United States.
OPINION.
The first issue is whether in the taxable year 1941 the petitioner, a nonresident alien, was engaged in trade or business *276 in the United States or had an office or place of business therein, within the meaning of section 211 of the Internal Revenue Code, as applicable in 1941. Under section 211 (b)1 the phrase "engaged in trade or business within the United States" does not include the effecting of transactions in the United States in commodities through a resident broker. The petitioner contends that this provision applies and*276 that the profits of the transactions effected during 1941 for his account are not taxable to him. The respondent contends that, since the petitioner was dependent upon the services of his brother and without them could not have operated to the extent he did, the gains realized to his account in 1941 are taxable to him. The respondent says that the petitioner was doing business in the United States. The respondent does not contend that the petitioner had an office or place of business in the United States in the taxable year.
*277 Prior to the enactment of the Revenue Act of 1936, profits realized by a nonresident alien through trading on commodity exchanges in the United States were taxable as income derived from sources in the United States. Zander & Cia, Ltd., 42 B. T. A. 50. Section 211 of the Revenue Act of 1936, similar to section 211 of the code as applicable in 1941, changed the basis of taxing nonresident aliens. Senate Report No. 2156, 74th Cong., 2d sess. on the Revenue Bill of 1936 explains the change (p. 21):
Your committee concurs in the main in the substantial changes made by the House bill in our present system of taxing nonresident aliens and foreign corporations. * * * In section 211 (a) it is proposed that the tax on a nonresident alien not engaged in a trade or business in the United States and not having an office or place of business therein, shall be at the rate of 10 per cent on his income from interest, dividends, rents, wages, and salaries and other fixed and determinable income, with no allowance for the deductions from gross income and credits against net income allowed to individuals subject to normal tax and surtax on net income. * * * Such a *278 nonresident alien will not be subject to the tax on capital gains, including so-called gains from hedging transactions, as at present, it having been found administratively impossible effectually to collect this latter tax. It is believed this exemption from tax will result in considerable additional revenue from the transfer taxes and from the income tax in the case of persons carrying on the brokerage business. * * *
*277 Trading in commodities for one's own account for profit may be a "trade or business" if sufficiently extensive. Fuld v. Commissioner, 139 Fed. (2d) 465; Norbert H. Wiesler, 6 T. C. 1148; affirmed without discussion of this point, 161 Fed. (2d) 997. The respondent determined that the petitioner was engaged in trade or business in the United States. While the number of transactions or the total amount of money involved in them has not been stated, it is apparent that many transactions were effected through different brokers, several accounts were maintained, and gains and losses in substantial amounts were realized. This evidence shows that the trading was extensive*279 enough to amount to a trade or business, and the petitioner does not contend, nor has he shown, that the transactions were so infrequent or inconsequential as not to amount to a trade or business. Had the petitioner come to the United States and effected these transactions while here for a sufficient period he would be taxed upon the profits of these transactions, for he would lose the status of nonresident alien and section 211 would not be applicable. He seeks to accomplish in this case, through his brother as his agent, what he could not accomplish directly by himself, that is, to effect transactions by decisions made in the United States by one who is not a resident broker, commission agent, or custodian, and not be taxed upon the gains. In effect he is engaging, by his agent, in trade or business in the United States. In Helvering v. Boekman, 107 Fed. (2d) 388, it was held that services performed in the United States by a clerk employed by a nonresident alien in transmitting orders from the alien to resident brokers in commodities for foreign customers of the alien were personal services performed in the United States on the alien's account, *280 rendering the income derived through these services taxable to the alien. Although here the petitioner is not performing personal services for others, the effect of the arrangement between the petitioner and his brother, from a tax standpoint, was the same as if the petitioner were in the United States and directly engaged in the business of trading in commodities. It is not material that this arrangement was an accommodation to overcome the difficulties of communication resulting from the war. The petitioner was under no necessity of trading on commodity exchanges in the United States, but was engaged in this trading solely for profit, at least during the years here involved.
It seems obvious from a reading of the statute that the Congress, in allowing nonresident aliens to effect transactions with brokers directly from abroad without being taxed on their gains, did not intend to permit a nonresident alien to establish an agent in the United States to effect transactions for his account and escape taxation of the profits. Section 211 (b) refers to a "nonresident alien individual engaged in trade or business in the United States or having an office or place of *278 business*281 therein." While the petitioner did not have a physical "office or place of business" in the United States within the common understanding of those terms ( Linen Thread Co., Ltd., v. Commissioner, 128 Fed. (2d) 166, affirming B. T. A. memorandum opinion; Aktiebolaget Separator, 45 B. T. A. 243; Recherches Industrielles, etc., 45 B. T. A. 253), he had what was a more potent means of doing business in the United States, since his brother was authorized to use his own discretion. In each of the cited cases a physical office existed, but the taxpayer's representatives there performed acts of far less consequence in the production of the taxpayer's income than here. The intent of the Congress with respect to taxing nonresident aliens is further indicated by section 219 of the Internal Revenue Code, which provides that a nonresident alien individual member of a partnership shall be considered as engaged in a trade or business within the United States if the partnership is so engaged. Under the law of partnership each partner is the agent of each other partner within the scope of the partnership*282 business. Accordingly, a nonresident alien partner is treated as being engaged in trade or business within the United States, as the resident members of the partnership, as his agents, are engaged in trade or business in the United States. While no partnership is here involved, the petitioner is doing business in the United States through a resident agent as fully as a nonresident alien partner may do business through the agency of a resident partner. The statute granting the exclusion of profits from a nonresident alien's commodity transactions in the United States, being an exemption provision, is to be strictly construed. We hold that it is not applicable here, where the alien has an agent in the United States using his own discretion in effecting transactions for the alien's account. Through such transactions the alien is engaging in trade or business within the United States, and the profits on these transactions are capital gains taxable to him.
The respondent concedes on brief that the petitioner may deduct from the short term capital gains realized in 1941 on account of the transactions effected by Joseph Adda the losses resulting from his transactions effected directly*283 with his brokers and amounting to $ 12,782.67.
The petitioner contends that he is entitled to a short term capital loss carry-over from 1940 under section 117 (e) of the Internal Revenue Code2 to the extent of $ 16,024.07. The petitioner, in 1940, had net income from sources within the United States, admittedly taxable, in this amount. In transactions involving the purchase and sale of commodities through resident brokers, he sustained short term capital *279 losses in excess of short term capital gains in the amount of $ 40,361.15. He had another short term capital gain of $ 27.05.
The respondent contends that the petitioner's claim can not be allowed, saying that such losses are allowable only if the profit, had the transactions*284 resulted in profit, would have been taxable, and that the petitioner has not proved that the transactions effected in 1940 which resulted in losses were in the same category as those which resulted in profit in 1941. We think the evidence sufficiently shows that the transactions in 1940 were of the same nature as those in 1941. Joseph Adda testified that shortly after the war broke out he called on the brokers to introduce himself and that he first gave orders to one of the brokers in December 1939 and to another in May 1940. The petitioner, in February 1940, wrote an authorization to one broker in New York to accept instructions from Joseph Adda and confirmed the transactions previously effected by Joseph Adda. There appears to be no basis for supposing that the transactions in 1940 were of a different nature from those in the taxable year. It happened that in 1940 the petitioner realized a gain on his direct transactions, but those effected by his brother resulted in a loss exceeding this gain. If the petitioner was engaged in trade or business in the United States in 1941, as determined by the respondent, and we have concluded that he was, he was likewise engaged in trade*285 or business in the United States in 1940. The petitioner's net short term capital loss in 1940, to the extent of his taxable income for that year, may be carried over and treated as a short term capital loss in 1941.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 211. TAX ON NONRESIDENT ALIEN INDIVIDUALS.
* * * *
(b) United States Business or Office. -- A nonresident alien individual engaged in trade or business in the United States or having an office or place of business therein shall be taxable without regard to the provisions of subsection (a). As used in this section, section 119, section 143, section 144, and section 231, the phrase "engaged in trade or business within the United States" includes the performance of personal services within the United States at any time within the taxable year, but does not include the performance of personal services for a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of ninety days during the taxable year and whose compensation for such services does not exceed in the aggregate $ 3,000. Such phrase does not include the effecting of transactions in the United States in stocks, securities, or commodities through a resident broker, commission agent, or custodian.↩
2. (e) Net Short-Term Capital Loss Carry-over.
If any taxpayer sustains in any taxable year * * * a net short-term capital loss, such loss (in an amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a short-term capital loss * * *↩