Waterman's Estate v. Commissioner of Internal Revenue

I begin with these first principles of income taxation: Although Congress, as it states in § 22(a), intends to include in gross income all gains “derived from any source whatever”, it does not intend that deductions for losses should be taken except as Congress expressly permits. In § 23(e) (2), it does permit a deduction of a loss incurred in a “transaction entered into for profit, though not connected with the trade or business”.1 The courts hold that the quoted words mean that the taxpayer’s motive or “state of mind” is crucial, that a loss is not deductible if he lacked a domi*246nant profit…