Case Name: L. Heller and Son, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 1949-06-22
Citations: 12 T.C. 1109
Docket Number: Docket No. 18987
Parties: L. Heller and Son, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the Tax Court of the United States
Volume: 12
Pages: 1109–1114

Head Matter:
L. Heller and Son, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 18987.
Promulgated June 22, 1949.
Bernard Weiss, Esq., for the petitioner.
Ellyne E. Strickland, Esq., for the respondent.

Opinion:
OPINION.
Opper, Judge:
There is evidence from which it may be concluded that petitioner's promise to some of the creditors of its subsidiary to make good their losses on the subsidiary's 77B reorganization was contemporaneous with the latter proceeding, and that the consent of the creditors to the reorganization was a consideration for petitioner's undertaking. If so, the payment by petitioner was pursuant to a contractual obligation, notwithstanding the principal debtor's discharge, see Abraham Greenspon, 8 T. C. 431; Welch v. Helvering, 290 U. S. 111, footnote 1; and deduction' as a loss of the amounts paid accordingly would be proper in the instant year. Charles G. Berwind, 8 T. C. 1112; Abraham Greenspon, supra.
But even if there were no binding commitments, petitioner's standing in the business community, its relationship to the jewelry trade generally, and its credit rating in particular, characterized the payments as calculated to protect and promote petitioner's business and as a natural and reasonable cost of its operation. Harris & Co. v. Lucas (C. C. A., 5th Cir.), 48 Fed. (2d) 187. As such, they are deductible in any event as ordinary and necessary business expense. Scruggs, Vandervoort-Barney, Inc., 7 T. C. 779; Catholic News Publishing Co., 10 T. C. 73.
The theory that these were capital expenditures is disposed of in the following language in Harris & Co. v. Lucas, supra:
It is argued, however, on behalf of respondent, that the expenditures were in the nature of the purchase of good will, a capital asset. Good will consists largely of a reputation for competence, honesty, and fair dealing, but its value is in attracting customers and not in securing credit. The establishment of credit to purchase does not at all guarantee that it will continue over a period of years. *
It is perfectly plain that the payments did not constitute capital investment.
We find it unnecessary to determine whether the payment is to be more accurately and technically described as a loss or a business expense. Claim is made on both grounds. Cf. Merton E. Farr, 11 T. C. 552, 565-566. On one or another, the deduction should be permitted.
For the inclusion of computations on other issues now apparently conceded,
Decision will be entered under Rule 50.
Keviewed by the Court.