Source: https://supreme.justia.com/cases/federal/us/325/365/case.html
Timestamp: 2017-10-21 04:37:19
Document Index: 689929103

Matched Legal Cases: ['§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 1141']

Trust of Bingham v. Commissioner (full text) :: 325 U.S. 365 (1945) :: Justia US Supreme Court Center
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Trust of Bingham v. Commissioner
325 U.S. 365 (1945)
Court of Appeals departed from the principles laid down in Dobson v. Commissioner, 320 U. S. 489, governing review of decisions of the Tax Court, and that the decision conflicted in principle with Commissioner v. Heininger, 320 U. S. 467, and Kornhauser v. United States, 276 U. S. 145.
The requirement of § 23(a)(2) that deductible expenses be "ordinary and necessary" implies that they must be reasonable in amount and must bear a reasonable and proximate relation to the management of property held for the production of income. See H.Rep. No. 2333, 77th Cong., 2d Sess., p. 75; Sen.Rep. No. 1631, 77th Cong., 2d Sess., p. 88. Ordinarily questions of reasonableness and proximity are for the trier of fact, here the Tax Court. Commissioner v. Heininger, supra, 320 U. S. 475; McDonald v. Commissioner, 323 U. S. 57, 323 U. S. 64-65; see Commissioner v. Scottish American Inv. Co., 323 U. S. 119. And even when they are hybrid questions of "mixed law and fact," their resolution, because of the fact element involved, will usually afford little concrete guidance for future cases, and reviewing courts will set aside the decisions of the Tax Court only when they announce a rule of general applicability, that the facts found fall short of meeting statutory requirements. Dobson v. Commissioner, supra, 320 U. S. 502; Commissioner v. Estate of Bedford, 325 U. S. 283; cf. Paul, "Dobson v. Commissioner," 57 Harv.Law Rev. 753 at 828-832, 836, 837. But whether the applicable statutes and regulations are such as to preclude the decision which the Tax Court has rendered is, as was recognized in Dobson v. Commissioner, supra, 320 U. S. 492-493, a question of law reviewable on appeal. See also Commissioner v. Heininger, supra, 320 U. S. 475.
terms of the trust, the nature of the property, and the duties of the trustees with respect to it were all found by the Tax Court, and are not challenged. The questions whether, on the facts found, the expenses in question are nondeductible either because they were not to produce income or because they were related to the management of property which was not held for the production of income turn in this case on the meaning of the words of § 23(a)(2), "property held for the production of income." They are therefore questions of law, decision of which is unembarrassed by any disputed question of fact or any necessity to draw an inference of fact from the basic findings. See Commissioner v. Scottish American Inv. Co., supra. They are "clear cut" questions of law, decision of which by the Tax Court does not foreclose their decision by appellate courts, as in other cases, Dobson v. Commissioner, supra, 320 U. S. 492, 320 U. S. 493, although their decision by the Tax Court is entitled to great weight. Dobson v. Commissioner, supra, 320 U. S. 501-502, and cases cited; cf. Medo Photo Supply Corp. v. Labor Board, 321 U. S. 678, 321 U. S. 681-682, n. 1, and cases cited.
the expense, if "ordinary and necessary," is directly connected with or proximately results from the conduct of the business. Kornhauser v. United States, supra, 276 U. S. 152-153; Commissioner v. Heininger, supra, 320 U. S. 470-471. The effect of § 23(a)(2) was to provide for a class of nonbusiness deductions coextensive with the business deductions allowed by § 23(a)(1), except for the fact that, since they were not incurred in connection with a business, the section made it necessary that they be incurred for the production of income or in the management or conservation of property held for the production of income. McDonald v. Commissioner, supra, 323 U. S. 61-62, 323 U. S. 66, and see H.Rep. No. 2333, 77th Cong., 2d Sess., pp. 46, 74-76; S.Rep. No. 1631, 77th Cong., 2d Sess., pp. 87-88.
What we have said applies with equal force to the expenses of contesting the tax deficiency. Section 23(a)(2) does not restrict deductions to those litigation expenses which alone produce income. On the contrary, by its terms, and in analogy with the rule under § 23(a)(1), the business expenses section, the trust, a taxable entity like a business, may deduct litigation expenses when they are directly connected with or proximately result from the enterprise -- the management of property held for production of income. Kornhauser v. United States, supra, 276 U. S. 152-153; Commissioner v. Heininger, supra, 320 U. S. 470-471. The Tax Court could find as a matter of fact, as it did, that the expenses of contesting the income taxes were a proximate result of the holding of the property for income. And we cannot say as a matter of law that such expenses are any less deductible than expenses of suits to recover income. Cf. Commissioner v. Heininger, supra.
So far as this regulation purports to deny deduction of litigation expense unless it is to produce income, it is not in conformity to the statute, for the reasons already stated, or with the Regulation already mentioned, which provides that, in addition to expenses for the production or collection of trust income, expenses of management or conservation of trust property held for the production of income are also deductible. To that extent and to the extent that it departs from the rule of Kornhauser v. United States, supra, it conflicts with the meaning and purpose of § 23(a)(2), and so is unauthorized. Helvering v. Reynolds Tobacco Co., 306 U. S. 110.
* See e.g., Security Mills Co. v. Commissioner, 321 U. S. 281, 321 U. S. 286; Douglas v. Commissioner, 322 U. S. 275; Commissioner v. Harmon, 323 U. S. 44; McDonald v. Commissioner, 323 U. S. 57; Claridge Apartments Co. v. Commissioner, 323 U. S. 141, 323 U. S. 145; Fondren v. Commissioner, 324 U. S. 18; Choate v. Commissioner, 324 U. S. 1; Commissioner v. Estate of Field, 324 U. S. 113; Webre Steib Co. v. Commissioner, 324 U. S. 164; Commissioner v. Smith, 324 U. S. 177; Commissioner v. Wemyss, 324 U. S. 303; Commissioner v. Wheeler, 324 U. S. 542; Estate of Putnam v. Commissioner, 324 U. S. 393; Angelus Milling Co. v. Commissioner, ante, p. 325 U. S. 293; Commissioner v. Estate of Bedford, ante, p. 325 U. S. 283; Commissioner v. Disstex, post, p. 325 U. S. 442.
This is one of those cases in which the ground of the decision is more important than the decision itself, except to the parties. And so, while I concur in the result, I feel bound to say that I think the manner in which it is reached is calculated to increase the already ample difficulties in judicial review of Tax Court determinations. The course of our decisions since Dobson v. Commissioner, 320 U. S. 489, calls for clarification and avoidance of further confusion.
should have the final say. In making the Dobson pronouncement, the Court was not unaware that "questions of fact" and "questions of law" were legal concepts around which dialectic conflicts have been fought time out of mind. The Dobson opinion took for granted that they are useful instruments of thought, even though not amenable to fixed connotations. The terms are unmanageable and too confusing if it be assumed that, unless they have invariant meaning, that is, unless they serve the same purpose for every legal problem in which they are invoked, they can serve no purpose for any problem. The contribution of the Dobson case, one had a right to believe, was the restriction of reviewable "questions of law" in tax litigation to issues appropriate for review in relation to the machinery which Congress has designed for such litigation. The Dobson case eschewed sterile attempts at differentiation between "fact" and "law" in the abstract. Instead, it found significance in the scheme devised by Congress for adjudicating tax controversies whereby Congress had, in the main, centralized in the Tax Court review of tax determinations by the Treasury, and had made the decisions of the Tax Court final unless they were "not in accordance with law," 44 Stat. 9, 110, 26 U.S.C. § 1141(c)(1), with the result that, as a practical matter, only a small percentage of Tax Court decisions gets into the Circuit Courts of Appeals, and a still smaller percentage reaches this Court.* Therefore, the decisions of the Circuit
Courts of Appeals, and even more so of this Court, are bound to be more or less episodic and dependent upon contingencies that cannot give these appellate courts that feel of the expert which is so important for wise construction of such interrelated and complicated enactments as those which constitute our revenue laws. These factors, so decisive in the stream of tax litigation, weigh heavily in apportioning functions between the Tax Court and the courts reviewing the Tax Court. Accordingly, the vital guidance of the Dobson opinion was that a decision of the Tax Court should stand unless it involves "a clear-cut mistake of law," 320 U. S. 320 U.S. 489, 320 U. S. 502. Considerations that may properly govern what are to be deemed questions of fact and questions of law as between judge and jury, or considerations relevant to the drawing of a line between questions of fact and questions of law on appeal from a court of first instance sitting without a jury, or in determining what is a foreclosed question of fact in cases coming to this Court from State courts on claims of unconstitutionality, may be quite misleading when a decision of the Tax Court is challenged in the various Circuit Courts of Appeals or here as "not in accordance with law."