Internal Revenue Code § 212 () provides a deduction, for U.S. federal income tax purposes, for

expense An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...

s incurred in

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

activities. Taxpayers are allowed to deduct all the ordinary and necessary expenses paid or incurred during the taxable year--

*(1) for the production or collection of
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...
; *(2) for the management, conservation, or maintenance of
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, re ...
held for the production of income; or *(3) in connection with the determination, collection, or refund of any
tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
.

Section 23(a)(2) of the Internal Revenue Code of 1939, the predecessor to section 212 of the current

Internal Revenue Code The Internal Revenue Code of 1986 (IRC), is the domestic portion of federal statutory tax law in the United States. It is codified in statute as Title 26 of the United States Code. The IRC is organized topically into subtitles and sections, co ...

of 1986, was enacted as part of the

Revenue Act of 1942 The United States Revenue Act of 1942, Pub. L. 753, Ch. 619, 56 Stat. 798 (Oct. 21, 1942), increased individual income tax rates, increased corporate tax rates (top rate rose from 31% to 40%), and reduced the personal exemption amount from $1,500 t ...

, effective retroactively for tax years that began after December 31, 1938, in the wake of the United States Supreme Court decision in the case of '' Higgins v. Commissioner''. In ''Higgins'', the taxpayer attempted to deduct expenses for the years 1932 and 1933 related to his investment efforts, which the U.S. Supreme Court held were rightly disallowed, under the tax statute as applicable to those years, by the Bureau of Internal Revenue (now known as the Internal Revenue Service). The Bureau contended, and the Court ruled, that investment efforts were not deductible as part of a "trade or business." The

United States Congress The United States Congress is the legislature, legislative branch of the federal government of the United States. It is a Bicameralism, bicameral legislature, including a Lower house, lower body, the United States House of Representatives, ...

responded by enacting section 23(a)(2) of the 1939 Code. Congress did not grant investment activities the status of "trade or business" expenses, but instead acknowledged that since investment expenses were costs of producing income, they should be deductible.Samuel A. Donaldson, ''Federal Income Taxation of Individuals'', 2nd Ed., p. 237. Section 212(3) may allow for the deduction of

accountant An accountant is a practitioner of accounting or accountancy. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certif ...

's fees associated with preparation of a federal income tax return.

Notes

{{reflist, 2 0212 Taxation in the United States Investment in the United States