Welch v. Helvering, No. 33

CourtUnited States Supreme Court
Writing for the CourtCARDOZO
Citation290 U.S. 111,54 S.Ct. 8,78 L.Ed. 212
PartiesWELCH v. HELVERING, Commissioner of Internal Revenue
Docket NumberNo. 33
Decision Date06 November 1933

290 U.S. 111
54 S.Ct. 8
78 L.Ed. 212
WELCH

v.

HELVERING, Commissioner of Internal Revenue.

No. 33.
Argued Oct. 19, 1933.
Decided Nov. 6, 1933.

Page 112

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.

Mr. Justice CARDOZO delivered the opinion of the Court.

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

Page 113

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

Page 114

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...

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8791 practice notes
  • United States v. Chambers, Case No. 3:09-cv-961-J-34JRK
    • United States
    • United States District Courts. 11th Circuit. United States District Court of Middle District of Florida
    • May 22, 2014
    ...v. Fior D'Italia, Inc., 536 U.S. 238, 242 (2002); see also Bone v. Comm'r, 324 F.3d 1289, 1293 (11th Cir. 2003)(citing Welch v. Helvering, 290 U.S. 111, 115 (1933)). In a case involving unreported income, the IRS'Page 12determination is entitled to a presumption of correctness only if the d......
  • United States v. Heinze, Crim. A. No. 2238.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Delaware)
    • July 16, 1973
    ...only that the expense be "appropriate and helpful" for "the development of the taxpayer's 361 F. Supp. 53 business". Welch v. Helvering, 290 U.S. 111, 113, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933). Also "ordinary" only refers to expenses distinct from capital expenditure. Welch, supra at 113-116,......
  • Southern Pacific Transp. Co. v. Comm'r of Internal Revenue, Docket No. 3493-69.
    • United States
    • U.S. Tax Court
    • December 31, 1980
    ...incurred constituted ordinary and necessary expenses of doing business within the general meaning of those terms. Welch v Helvering 290 U.S. 111 (1933). However, in Tank Truck Rentals Inc v Commissioner supra the Supreme Court, after acknowledging that the fines incurred by the taxpayer for......
  • Appalachian Power Co. v. State Tax Dept. of West Virginia, No. 22795
    • United States
    • Supreme Court of West Virginia
    • December 8, 1995
    ...upon the use of the contested language in the newer statute. Therefore, a case-by-case analysis is necessary. 28 See Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212...
  • Request a trial to view additional results
8763 cases
  • United States v. Chambers, Case No. 3:09-cv-961-J-34JRK
    • United States
    • United States District Courts. 11th Circuit. United States District Court of Middle District of Florida
    • May 22, 2014
    ...v. Fior D'Italia, Inc., 536 U.S. 238, 242 (2002); see also Bone v. Comm'r, 324 F.3d 1289, 1293 (11th Cir. 2003)(citing Welch v. Helvering, 290 U.S. 111, 115 (1933)). In a case involving unreported income, the IRS'Page 12determination is entitled to a presumption of correctness only if the d......
  • United States v. Heinze, Crim. A. No. 2238.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Delaware)
    • July 16, 1973
    ...only that the expense be "appropriate and helpful" for "the development of the taxpayer's 361 F. Supp. 53 business". Welch v. Helvering, 290 U.S. 111, 113, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933). Also "ordinary" only refers to expenses distinct from capital expenditure. Welch, supra at 113-116,......
  • Southern Pacific Transp. Co. v. Comm'r of Internal Revenue, Docket No. 3493-69.
    • United States
    • U.S. Tax Court
    • December 31, 1980
    ...incurred constituted ordinary and necessary expenses of doing business within the general meaning of those terms. Welch v Helvering 290 U.S. 111 (1933). However, in Tank Truck Rentals Inc v Commissioner supra the Supreme Court, after acknowledging that the fines incurred by the taxpayer for......
  • Appalachian Power Co. v. State Tax Dept. of West Virginia, No. 22795
    • United States
    • Supreme Court of West Virginia
    • December 8, 1995
    ...upon the use of the contested language in the newer statute. Therefore, a case-by-case analysis is necessary. 28 See Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212...
  • Request a trial to view additional results
36 firm's commentaries
4 books & journal articles
  • Down the Rabbit Hole With the IRS' Challenge to Perpetual Conservation Easements, Part Two
    • United States
    • Environmental Law Reporter Nbr. 51-3, March 2021
    • March 1, 2021
    ...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......
  • Practical advice on current issues.
    • United States
    • The Tax Adviser Vol. 52 Nbr. 2, February 2021
    • February 1, 2021
    ...of another taxpayer is not ordinary and necessary and as such may not be claimed as a deduction under Sec. 162 (Welch v. Helvering, 290 U.S. 111 (1933)). When one taxpayer pays an expense that is properly treated as the obligation of another taxpayer, there is often a recharacterization as ......
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    • United States
    • August 1, 2020
    ...(58.) Laidlaw's Harley Davidson Sales. Inc.. 154 T.C. No. 4 (2020). (59.) Blackburn, 150 T.C. 218(2018). (60.) Welch v. Helvering, 290 U.S. 111, 115 (61.) Frost, 154 T.C. No. 2 (2020). (62.) Dynamo Holdings LP, 150 T.C. 224 (2018). However, if the small-partnership exception applies, the IR......
  • Voluntary carbon offsets: The evolution of a business expense.
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    • January 1, 2022
    ...1.269-2(b), applicable to acquisitions made to evade or avoid income tax, most often of a "loss corporation." (13) Welch v. Helvering, 290 U.S. 111 (14) Id. at 115, likening the petitioner's payments to those for education that enables a taxpayer to "practice his vocation with greater ease ......

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