Welch v. Helvering
Citation | 290 U.S. 111,54 S.Ct. 8,78 L.Ed. 212 |
Decision Date | 06 November 1933 |
Docket Number | No. 33,33 |
Parties | WELCH v. HELVERING, Commissioner of Internal Revenue |
Court | United States Supreme Court |
Messrs. Edward S. Stringer, Thomas D. O'Brien, and Alexander E. Horn, all of St. Paul, Minn., for petitioner.
The Attorney General and Mr. H. Brian Holland, of Philadelphia, Pa., for respondent.
The question to be determined is whether payments by a taxpayer, who is in business as a commission agent, are allowable deductions in the computation of his income if made to the creditors of a bankrupt corporation in an endeavor to strengthen his own standing and credit.
In 1922 petitioner was the secretary of the E. L. Welch Company, a Minnesota corporation, engaged in the grain business. The company was adjudged an involuntary bankrupt, and had a discharge from its debts. Thereafter the petitioner made a contract with the Kellogg Company to purchase grain for it on a commission. In order to re-establish his relations with customers whom he had known when acting for the Welch Company and to solidify his credit and standing, he decided to pay the debts of the Welch business so far as he was able. In fulfillment of that resolve, he made payments of substantial amounts during five successive years. In 1924, the commissions were $18,028.20, the payments $3,975.97; in 1925, the commissions $31,377.07, the payments $11,968.20; in 1926, the commissions $20,925.25, the payments $12,815.72; in 1927, the commissions $22,119.61, the payments $7,379.72; and in 1928, the commissions $26,177.56, the payments $11,068.25. The Commissioner ruled that these payments were not deductible from income as ordinary and necessary expenses, but were rather in the nature of capital expenditures, an outlay for the development of reputation and good will. The Board of Tax Appeals sustained the action of the Commissioner (25 B.T.A. 117), and the Court of Appeals for the Eighth Circuit affirmed. 63 F.(2d) 976. The case is here on certiorari.
'In computing net income there shall be allowed as deductions * * * all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.' Revenue Act of 1924, c. 234, 43 Stat. 253, 269, § 214, 26 U.S.C. § 955, 26 USCA § 955(a)(1); Revenue Act of 1926, c. 27, 44 Stat. 9, 26, § 214, 26 U.S.C. App. § 955, 26 USCA § 955(a)(1); Revenue Act of 1928, c. 852, 45 Stat. 791, 799, § 23(a), 26 USCA § 2023(a); cf. Treasury Regulations 65, Arts. 101, 292, under the Revenue Act of 1924, and similar regulations under the acts of 1926 and 1928.
We may assume that the payments to creditors of the Welch Company were necessary for the development of the petitioner's business, at least in the sense that they were appropriate and helpful. McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579. He certainly thought they were, and we should be slow to override his judgment. But the problem is not solved when the payments are characterized as necessary. Many necessary payments are charges upon capital. There is need to determine whether they are both necessary and ordinary. Now, what is ordinary, though there must always be a strain of constancy within it, is none the less a variable affected by time and place and circumstance. Ordinary in this context does not mean that the payments must be habitual or normal in the sense that the same taxpayer will have to make them often. A lawsuit affecting the safety of a business may happen once in a lifetime. The counsel fees may be so heavy that repetition is unlikely. None the less, the expense is an ordinary one because we know from experience that payments for such a purpose, whether the amount is large or small, are the common and accepted means of defense against attack. Cf. Kornhauser v. United States, 276 U.S. 145, 48 S.Ct. 219, 72 L.Ed. 505. The situation is unique in the life of the individual affected, but not in the life of the group, the community, of which he is a part. At such times there are norms of conduct that help to stabilize our judgment, and make it certain and objective. The instance is not erratic, but is brought within a known type.
The line of demarcation is now visible between the case that is here and the one supposed for illustration. We try to classify this act as ordinary or the opposite, and the norms of conduct fail us. No longer can we have recourse to any fund of business experience, to any known business practice. Men do at times pay the debts of others without legal obligation or the lighter obligation imposed by the usages of trade or by neighborly amendities, but they do not do so ordinarily, not even though the result might be to heighten their reputation for generosity and opulence. Indeed, if language is to be read in its natural and common meaning (Old Colony R. Co. v. Commissioner, 284 U.S. 552, 560, 52 S.Ct. 211, 76 L.Ed. 484; Woolford Realty Co. v. Rose, 286 U.S. 319, 327, 52 S.Ct. 568, 76 L.Ed. 1128), we should have to say that payment in such circumstances, instead of being ordinary is in a high degree extraordinary. There is nothing ordinary in the stimulus evoking it, and none in the response. Here, indeed, as so often in other branches of the law, the decisive distinctions are those of degree and not of kind. One struggles in vain for any verbal formula that will supply a ready touchstone. The standard set up by the statute is not a rule of law; it is rather a way of life. Life in all its fullness must supply the answer to the riddle.
The Commissioner of Internal Revenue resorted to that standard in assessing the petitioner's income, and found that the payments in controversy came closer...
To continue reading
Request your trial-
Van Raden v. Comm'r of Internal Revenue, Docket Nos. 1336–76
...of some other month, we must look at all of the facts and circumstances because business purpose is a question of fact. Welch v. Helvering, 290 U.S. 111 (1933); Wilson v. Commissioner, 353 F.2d 184 (9th Cir. 1965), revg. 42 T.C. 914 (1964).2 To prove business purpose, petitioners rely on th......
-
United States v. Janis, No. 74-958
...States Tax Court. Lucas v. Structural Steel Co., 281 U.S. 264, 271, 50 S.Ct. 263, 265, 74 L.Ed. 848 (1930); Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933); Rule of the Rules of Practice and Procedure of the United States Tax Court1973). In any event, for purposes ......
-
Cross v. Comm'r of Internal Revenue
...income. United States v. Anderson, 625 F.2d 910, 913 (9th Cir. 1980); Karmun v. Commissioner, 82 T.C. 201, 204 (1984).5 See Welch v. Helvering, 290 U.S. 111 (1933). Petitioners have failed to show an express exemption in any Treaty or Act of Congress. Thus we must agree with respondent that......
-
Campbell Taggart, Inc. v. U.S.
...an otherwise-capital asset. It is clear that an expenditure to acquire goodwill must be capitalized. See, e.g., Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212 (1933) (expenditures to develop goodwill and reputation for taxpayer's new business; held, not deductible, but must be c......
-
Tax Court In Brief | Starer v. Comm'r | S Corp Passthrough; Constructive Dividend; Method Of Accounting; Bad Debt Deduction; Accuracy-related Penalties
...are generally presumed correct, and taxpayers bear the burden of proving them incorrect. See Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 S Corporation. In general, a corporation electing to be taxed as an S corporation does not pay tax at the corporate level. I.R.C. ' 1363(a). Rat......
-
Tax Court In Brief | Yaguda v. Comm'r | Taxation Of Unearned Income Of Child; Income From S Corp; Accuracy-Related Penalty
...presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In order for the presumption of correctness to attach to the deficiency determination in unreported income cases, the IRS must e......
-
Tax Court In Brief | Avery v. Comm'r | Collection Due Process And A Lawyer's Race Car Business Expense Deductions
...[is] of common or frequent occurrence in the type of business involved." Deputy v. du Pont, 308 U.S. 488, 495 (1940); Welch v. Helvering, 290 U.S. 111, 113-14 (1933). A necessary expense is one that is "appropriate and helpful" in carrying on the taxpayer's profit-seeking activity. Welch v.......
-
Tax Court In Brief | Ashford V. Comm'r | Unreported Income, Additions To Tax, Frivolous Arguments, Taxable Income
...of deficiency are generally presumed correct, and taxpayers bear the burden of proving them erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); see Williams v. Commissioner, 999 F.2d 760, 763-64 (4th Cir. 1993), aff'g T.C. Memo. 1992-153. Where a return is not filed by a t......
-
The pleading problem.
...U.S. 478 (1986) 8374 47 Saucier v. Katz, 533 U.S. 194 (2001) 8338 48 Estelle v. McGuire, 502 U.S. 62 (1991) 8305 49 Welch v. Helvering, 290 U.S. 111 (1933) 8117 50 Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941) 8081 51 Rose v. Lundy, 455 U.S. 509 (1982) 8028 52 United States v......
-
Table of Cases
...Buren Road Commission , 155 Mich. App. 527 (1986), § 9:530.2.1 Weaver v. Mann , 90 F.R.D. 443 (D.N.D. 1981), § 7:90 Welch v. Helvering , 290 U.S. 111 (1933), § 8:541 Wells v. Colorado College , 478 F. 2d 158 (10th Cir. 1973), § 10:750 Westberry v. Gisleved Gummi AB , 178 F.3d 257 (4th Cir. ......
-
Down the Rabbit Hole With the IRS' Challenge to Perpetual Conservation Easements, Part Two
...INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v. Helvering, 290 U.S. 111, 115 (1933). 94. See Tax Court Rule 142(a); INDOPCO, Inc. , 503 U.S. at 84; New Colonial Ice Co. , 292 U.S. at 440; Welch , 290 U.S. at 115. 9......
-
The proper income tax treatment of environmental remediation expenditures.
...Mail Transport, Inc. v. Commissioner, T.C. Memo. 1992-252. (21) Lincoln Savings & Loan v. Commissioner, 403 U.S. 345, 352 (1971). (22) 290 U.S. 111 (1933). (23) Id. at 114. (24) An ordinary expense means "normal, usual or "customary." Deputy v. DuPont, 308 U.S. 488, 495 (1940). A one-ti......