Document: 383 U.S. 687 86 S.Ct. 1118 16 L.Ed.2d 185 COMMISSIONER OF INTERNAL REVENUE, Petitioner,v.Walter F. TELLIER et ux. No. 351. Argued Jan. 27, 1966. Decided March 24, Jack S. Levin, Washington, D.C., for petitioner. Michael Kaminsky, New York City, respondents. Mr. Justice STEWART delivered the opinion of Court. 1 The question presented in this case is whether expenses incurred by a taxpayer unsuccessful defense criminal prosecution may qualify deduction from taxable income under § 162(a) Internal Revenue Code 1954, which allows 'all ordinary and necessary paid or during year carrying on any trade business * *.'1 respondent Walter Tellier was engaged underwriting public sale stock offerings purchasing securities resale to customers. In 1956 he brought trial upon 36-count indictment that charged him with violating fraud section Securities Act 19332 mail statute,3 conspiring violate those statutes.4 He found guilty all counts sentenced pay an $18,000 fine serve four half years prison. judgment conviction affirmed appeal.5 his prosecution, $22,964.20 legal 1956. claimed amount federal tax return year. Commissioner disallowed sustained Tax T.C.Memo. 1963—212, 22 CCH Ct.Mem. 1062. Court Appeals Second Circuit reversed unanimous en banc decision, 342 F.2d 690, we granted certiorari. 382 808, 81, 15 58. We affirm Appeals. 2 There can be no serious payments deducted were decisions Court, does not contend otherwise. United States v. Gilmore, 372 39, 83 623, 9 570, held 'the origin character claim respect expense incurred, rather than its potential consequences fortunes taxpayer, controlling basic test 'business' 'personal" within meaning 162(a). U.S., at 49, S.Ct., 629. Cf. Kornhauser States, 276 145, 153, 48 219, 220, 72 L.Ed. 505; Deputy du Pont, 308 488, 494, 496, 60 363, 366, 367, 84 416. charges against their source activities as dealer. respondent's fees, charges, therefore clearly Gilmore 'expenses business' 3 also concedes 'ordinary' 'necessary' Our have consistently construed term imposing only minimal requirement 'appropriate helpful' development (taxpayer's) business.' Welch Helvering, 290 111, 113, 54 8, 9, 78 212; supra, 152, 220; Lilly Commissioner, 343 90, 93—94, 497, 499, 96 769; Heininger, 320 467, 471, 64 249, 252, 88 171; McCulloch State Maryland, 4 Wheat. 316, 413—415, 579. principal function clarify distinction, often difficult, between are currently deductible nature capital expenditures, which, if all, must amortized over useful life asset. 113—116, 8—10.6 expenditures. They past conduct, acquisition establish counsel fees comparable here involved expenses, even though 'lawsuit affecting safety happen once lifetime.' 114, 9. 152—153, cf. Trust Bingham 325 365, 376, 65 1232, 1238, 89 1670.7 It clear provisions given normal effection case. determined, however, expenditures meet literal requirements 162(a), nevertheless ground policy. That view finds considerable support other administrative judicial decisions.8 support, regulation statute decision believe such 'public policy' exception plain warranted circumstances 5 start proposition net income, sanction wrongdoing. principle has been firmly imbedded beginning. One familiar facet truism concern itself lawfulness it taxes. Income enterprise taxed rate higher lower more conventional sources. '(T)he fact unlawful (does not) exempt paying taxes lawful would pay.' Sullivan, 274 259, 263, 47 607, 71 1037. See James 366 213, 81 1052, 6 246. With deductions, rule, few limited well-defined exceptions, same. During Senate debate 1913 bill became first modern law, amendments rejected deductions losses 'legitimate' 'lawful' business. Senator Williams, who charge bill, stated floor 7 object man's income; say, what end after deducting receipts losses. reform men's moral characters; all. 8 levied purpose restraining people betting horse races 'futures,' but framed making man actual profit law care where got from, so far concerned, although very properly another way.' 50 Cong.Rec. 3849.9 application reflected several As recently 356 512, 559, allowance rent wages operators gambling enterprise, both specific wage there illegal state law. rejecting Commissioner's contention illegality required disallowance deduction, that, 'enforce policy rule espoused case, come close type basis gross receipts, while income. If choice made, Congress should do it.' Id., 29, 514. 769, upheld opticians amounts doctors prescribed eyeglasses sold, careful disavow 'approval ethics *.' 97, 501. And 171, akin one before us, dentist lawyer's unsuccessfully defending order issued Postmaster General. 10 Deduction falling general definition may, sure, legislation, since 'are matter grace can, course, disallow them chooses.' 28, 514.10 effect precise longstanding Treasury Regulation prohibiting specified category expenditures; example lobbying whose nondeductibility supported considerations present. Textile Mills Corp. 314 326, 62 272, 249; Cammarano 358 498, 79 524, 462. But wholly silent, extremely countenanced exceptions Heininger decisions. Only 'frustrate sharply defined national policies proscribing particular types conduct' disallowance. 473, 253. Further, 'policies frustrated evidenced some governmental declaration them.' (Emphasis added.) Finally, 'test always severity immediacy frustration resulting deduction.' Tank Truck Rentals 30, 35, 507, 510, 562. Hoover Motor Express Co. 38, 511, 568, taxpayers fines penalties imposed penal statutes; allow directly substantially diluted punishment imposed. 11 present falls outside carefully category. No offended when faced employs lawyer help defense. 'proscribed conduct.' constitutional right. Chandler Fretag, 348 3, 75 1, 99 4. Gideon Wainwright, 335, 792, 799. adversary system justice, our defendant represent him. 12 authorized imposition severe offenses convicted. find warrant attaching additional financial burden neither expressly nor implicitly directed.11 To deny impose measure dependent seriousness offense sentence court, cost defendant's bracket. decline distort laws they intended designed Congress. 13 affirmed. 14 Affirmed. '(a) general.—There shall allowed 26 U.S.C. 162. Stat. 84, 17, amended, 77q(a). 18 1341. 371. Tellier, 255 441 (C.A.2d Cir.). Griswold, An Argument Against Doctrine Deductions Should Be Narrowly Construed Matter Legislative Grace, 56 Harv.L.Rev. 1142, 1145; Wolfman, Professors 'Ordinary Necessary' Business Expense, 112 U.Pa.L.Rev. 1089, 1111—1112. Brookes, Litigation Expenses Tax, L.Rev. 241. Sarah Backer, B.T.A. 214; Norvin R. Lindheim, 229; Thomas A. Joseph, T.C. 562; Burroughs Bldg. Material 178 Cir.); Schwartz, 232 94 (C.A.5th Acker 258 568 (C.A.6th Bell 953 (C.A.8th Peckham 327 855, 856 (C.A.4th Port 163 F.Supp. 645, 143 Ct.Cl. 334. Note, Expenses, Disallowance, Public Policy: Some Problems Sanctioning Code, Yale L.J. 108; Mertens, Law Federal Taxation 25.49 ff. Compare Longhorn Portland Cement Co., 310; G.C.M. 24377, 1944 Cum.Bull. 93; Lamont, Controversial Aspects Ordinary Necessary 42 Taxes 833—834. challenging amendments, Williams stated: 'In words, you going count having money got, because lost way approve of.' 3850. Specific legislation denying unknown. E.g., 162(c) (disallowance officials employees foreign countries applicable; Treas.Reg. 1.162—18); 165(d) (deduction wagering extent gains). Stabilization 1942, 5(a), 767, U.S.C.App. 965(a) (1946 ed.), Defense Production 1950, 405(a), 807, c. 275, 104(i), 136 (1951), 2105(a) (1952 405(b), 2105(b) ed.) (general authority President prescribe price regulations disregarded government agencies, including Service; see Rev.Rul. 56—180, 1956—1 94). 1.162—1(a), provides 'Penalty taxes, account negligence, delinquency, fraud, income'; Joint Committee Taxation, Staff Study Treatment Treble Damage Payments Antitrust Laws, Nov. 1965, p. (proposal 162 amended certain fines, penalties, treble-damage payments, bribes, kickbacks). Paul, Use Policy Disallowing Deductions, 1954 So.Calif.Tax Inst. 715, 730—731: '* Section 23(a)(1)(A) (the predecessor 162(a)) essay morality, encourage virtue discourage sin. 'was contrived arm enforce statutes Nor implement various regulatory time enacted. provision modestly concerned 'commercial income'—a businessman's accretion wealth due operating costs evidence attempt punish feels flouted. hardly operates 'in vacuum,' serves own vital leaves problems statutes.'

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