Internal Revenue Code § 212 provides a deduction

Tax deduction

Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...

, for U.S. federal income tax purposes

Income tax in the United States

In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

, for expense

Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...

s incurred in investment

Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 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
  Taxable income
  Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
  
  ;

• (2) for the management, conservation, or maintenance of property
  Property
  Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
  
   held for the production of income; or

• (3) in connection with the determination, collection, or refund of any tax
  Tax
  To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
  
  ."

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

Internal Revenue Code

The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

 of 1986, was enacted as part of the Revenue Act of 1942

Revenue Act of 1942

The United States Revenue Act of 1942, Pub. L. 753, Ch. 619, 56 Stat. 798 , increased individual income tax rates, increased corporate tax rates , and reduced the personal exemption amount from $1,500 to $1,200...

, 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)

Internal Revenue Service

The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

. The Bureau contended, and the Court ruled, that investment efforts were not deductible as part of a “trade or business."

The United States Congress

United States Congress

The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

 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.

Section 212(3) may allow for the deduction of accountant

Accountant

An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...

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