"The trial court erred in instructing the jury that for [taxpayers] to qualify for a loss deduction their primary motive must be profit.”
How later courts described this case
- "The trial court erred in instructing the jury that for [taxpayers] to qualify for a loss deduction their primary motive must be profit.”
- deductions on losses allowable if the straddle had a reasonable prospect for generating profits
Written by the judges who cited it.
The opinion
FLETCHER, Circuit Judge,
dissenting:
I respectfully dissent. The majority relies essentially on one sentence in the Conference Committee Report that accompanied the Deficit Reduction Act of 1984 to conclude that Congress intended a different meaning for the phrase “transaction entered into for profit” in section 108 from its well-established meaning in other parts of the Internal Revenue Code. In 1938, the Supreme Court first interpreted this phrase to require that a taxpayer’s primary motive for entering into a transaction be profit. Helvering v. National Grocery Co., 304 U.S. 282 , 289 n. 5, 58 S.Ct. 932 , 936 n. 5, 82 L.Ed. 1346 (1938). “The subjective, primary purpose test has since been adopted as the standard to be applied in determining whether a transaction is ‘entered into for profit’ in cases arising under section 165(c)(2) and its predecessor, section 23(e).” Miller v. Commissioner, 84 T.C. 827, 851-52 (1985) (Simpson, J., dissenting) (citing cases). I cannot agree with the majority’s conclusion that in section 108 of the Deficit Reduction Act of 1984, Congress effected a radical change in the meaning of “transaction entered into for profit.”
I find persuasive the reasoning of the dissenting opinions in Miller in which the Tax Court split 10-8 on this precise issue. “[W]hen Congress used the phrase ‘transaction entered into for profit’ in section 108, its well-established meaning must have been evident to those working with the statute. We must presume that Congress intended such phrase to have the same meaning when used in section 108.” Id. at 852 . The “vague sentence” in the Conference Committee Report, see id. at 850 , on which the majority bases its holding, is countered by statements in the Congressional Record by Senator Metzenbaum and Representative Ottinger that give no indication that Congress intended to extend the relief of section 108 to all traders in tax straddles. See id. at 855-56 . More sub *1316 stantial evidence of Congress’s intent to change to an objective “reasonable expectation of any profit” standard is required to warrant a deviation from existing statutory interpretation. I also find persuasive the Government’s argument that the statutory scheme is skewed by the majority’s interpretation. It makes section 108(b)’s presumptions favoring dealers and regular investors superfluous.
I would hold that the district court properly instructed the jury that the losses were deductible only if the Wehrlys’ primary motive for entering into the transactions was to make a profit, and would accordingly affirm.