Source: http://www.chanrobles.com/usa/us_supremecourt/323/57/case.php
Timestamp: 2019-10-21 15:43:03
Document Index: 382644099

Matched Legal Cases: ['§ 23', '§ 48', '§ 23', '§ 23', '§ 23', '§ 121', '§ 48', '§ 121']

MCDONALD V. COMMISSIONER, 323 U. S. 57 (1944) - US SUPREME COURT DECISIONS ON-LINE
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Opinion of FRANKFURTER, J., in which STONE, C.J.,and ROBERTS and JACKSON, JJ., concur:
139 F.2d 400 affirmed. chanroblesvirtualawlibrary
In December, 1938, the Governor of Pennsylvania appointed petitioner to serve an unexpired term as Judge of the Court of Common Pleas of Luzerne County. Under Pennsylvania law, such an interim judgeship is filled for a full term at the next election. McDonald accepted this temporary appointment with the understanding that he would contest both the primary and general elections. To obtain the support of his party organization, he was obliged to pay to the party fund an "assessment" made by the party's executive committee against all of the party's candidates. The amounts of such "assessments" were fixed on the basis of the total prospective salaries to be received from the various offices. The salary of a common pleas judge was $12,000 a year for a term of ten years, and the "assessment" against petitioner was fixed at $8,000. The proceeds from these "assessments" went to the general campaign fund in the service of the party's entire ticket. In addition to this political levy, McDonald also spent $5,017.27 for customary campaign expenses -- advertising, chanroblesvirtualawlibrary
"All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business" are allowed by § 23(a)(1)(A) as deductions in computing net income. According to tax law terminology (§ 48(d) of the Internal Revenue Code), the performance by petitioner of his judicial office constituted carrying on a "trade or business" within the terms of § 23 of the Internal Revenue Code. He was therefore entitled to deduct from his gross income all the "ordinary and chanroblesvirtualawlibrary
New Colonial Ice Co. v. Helvering, 292 U. S. 435, 292 U. S. 440. For these campaign expenses to be deductible, it must be found that they can conveniently come within § 23(a)(1)(A). To put it mildly, that section is not a clear provision for such an allowance. To determine allowable deductions by the different internal party arrangements for bearing the cost of political campaigns in the forty-eight states would disregard the explicit restrictions of § 23 confining deductible chanroblesvirtualawlibrary
Finally, reliance is placed on an amendment to the Internal Revenue Code introduced by § 121 of the Revenue Act of 1942, 56 Stat. 798. 819. [Footnote 2] This amendment was proposed by the Treasury (1 Hearings before Committee on Ways and Means, Revenue Revision, 1942, 77th Cong., 2d Sess., p. 88) to afford relief for a specifically defined inequitable situation which had become manifest by the decision of the Court in Higgins v. Commissioner, 312 U. S. 212. In that case, this Court held that, by previous enactments, Congress had made no provision for allowable chanroblesvirtualawlibrary
deductions from profitable transactions not covered by the statutory concept of "business" income. But, of course, earnings from "the performance of the functions of a public office" had specifically been so covered. § 48(d). [Footnote 3] Congress adopted the Treasury proposal for the restricted purpose which originated it. And so here, the difficulty is not that petitioner's expenditures related to "nonbusiness" income, and thus were excluded from the legislative scheme before the 1942 Amendment, but that they were not incurred in "carrying on" his "business" of judging. The amendment of 1942 merely enlarged the category of incomes with reference to which expenses were deductible. It did not enlarge the range of allowable deductions [Footnote 4] of "business" expenses. In short, the act of 1942 in no wise affected the disallowance of campaign expenses as consistently reflected by legislative history, court decision, Treasury practice, and Treasury regulations. [Footnote 5] Nothing whatever in the circumstances attending the adoption of § 121 of the Revenue Act of 1942 warrants the suggestion that Congress unwittingly initiated a radical chanroblesvirtualawlibrary
To find sanction in existing tax legislation for deduction of petitioner's campaign expenditures would necessarily require allowance of deduction for campaign expenditures by all candidates, whether incumbents seeking reelection or new contenders. To draw a distinction between outlays for reelection and those for election -- to allow the former and disallow the latter -- is unsupportable in reason. It is even more unsupportable in public policy to derive from what Congress has thus far enacted a handicap against chanroblesvirtualawlibrary
Having regard to the controversies which peculiarly call for this Court's adjudication and to the demands for their adequate disposition, as well as to the exigencies of litigation generally, relatively few appeals from Tax Court decisions can, in any event, come here. That court of necessity must be the main agency for nationwide supervision of tax administration. Whatever the statutory or practical limitations upon the exercise of its authority, Congress has plainly designed that tribunal to serve, as it were, as the exchequer court of the country. Due regard chanroblesvirtualawlibrary
Prior to the enactment of this section, taxpayers in computing net income were not allowed deductions from gross chanroblesvirtualawlibrary
The 1942 Act articulated the purpose of Congress to wipe out every vestige of a policy which denied tax deductions for legitimate expenses incurred in producing taxable income. Taxation on net, not on gross, income has chanroblesvirtualawlibrary
always been the broad basic policy of our income tax laws. Net income may be defined as what remains out of gross income after subtracting the ordinary and necessary expenses incurred in efforts to obtain or to keep it. In 1941, this Court upheld, in Higgins v. Commissioner, 312 U. S. 212, a finding of the Board of Tax Appeals that one who managed, conserved, and maintained his own property was not engaged in a "trade or business," and, for this reason, was not entitled to deduct expenses incurred in producing his gross income. The effect of this holding was to impair the general Congressional policy to tax only net income. Congress, in its Revenue Act of 1942, supra, took note of this impairment and indicated in a most forthright manner its allegiance to the net income tax policy. Except for transactions carried on "primarily as a sport, hobby, or recreation," see Senate and House Committee Reports, supra, Congress provided a deduction for all ordinary and necessary expenses incurred in the production of income. The language it utilized was certainly far broader than was required to meet the narrow problem presented by the Higgins case. Congress specifically disposed of the Higgins problem by allowing a deduction for the expenses incurred in " . . . the management, conservation, or maintenance of property held for the production of income." Had Congress simply enacted these words, and nothing more, it might properly have been inferred that it intended to grant the type of deduction denied in the Higgins case, and no other. But it provided an additional deduction, in the very same section, for expenses incurred in "the production . . . of income." To hold, therefore, that Congress, in this new section, was concerning itself only with the restricted issue created by the Higgins case is to deny any meaning or validity to this latter clause; in a larger sense, such a construction carves out of the section a vital segment which Congress intentionally -- or so we must assume -- put there. chanroblesvirtualawlibrary
The Court's decision is also grounded upon its reference to congressional policy restricting campaign contributions and political activities by government officials. We are chanroblesvirtualawlibrary
State officials all over this nation have been subject to federal income taxes since 1939. When they run for office, they must necessarily spend some money to advertise their campaigns. We permit private individuals to deduct expenses incurred in advertising to get business. If this petitioner had owned a factory, the operations of which were suspended because of war contracts, and had advertised goods which he could not presently sell, the expenses of such advertising would have been deductible under Treasury rulings. [Footnote 2/2] chanroblesvirtualawlibrary