Earl Warren: Number 119, Commissioner of Internal Revenue versus Neil Sullivan, Grace Sullivan, James Ross et al. Mr. Solicitor General.
J. Lee Rankin: Mr. Chief Justice, may it please the Court. This case involves a book majors expenses. It involves the question of payments made for the expressed purpose of inducing the commission of a crime. The amounts involved are for three years, 48, 49 and 50, about 19,000 wages paid to men who record the bets, and 8700 approximately of rent for the first year and a total of about 32,000, below 32,000 for each of the subsequent years. The payments are in violation of the statute of Illinois. The bookmaking establishment was operated in the central business district of Chicago in a hotel. It moved around a number of times because the police caught up with it or interfered with its activities. And the hotel owner furnished a new location in the same hotel and there's a direct finding that the hotel owner knew that these premises was being used for the particular purpose. There's a direct finding by the Court that it was in violation of statutes 336 and 582 of the State of Illinois.
Speaker: But if the landlord is sued for (Inaudible)
J. Lee Rankin: Could recover? I -- I question in this particular situation. There are some Illinois cases referred to in the petition -- in the respondent's brief in which they -- the Court dealt with the question. But there, it was a question of suit between the parties which is a different problem under Illinois law, one thing. And secondly, it was a question of whether he leased the particular premises rather than, whether he permitted the use of the premises. Now, I -- I haven't found any Illinois case to the effect that if he permitted the use of the premises, he could recover. And one of the cases cited by the respondents distinguishes particularly between that language of leasing or permitting the leasing or rent and permitting the use, which is the word of the statute called attention to the difference. The particular statute involved is set forth on the -- in the Government's brief on page 3. And the language that we think was violated and that the Court agreed and found particularly, runs down to the seventh, the eighth line or any person who records or registers bets or wagers or sells pools. Now, the acts that these men were paid for were specifically found to be the registering of bets or wagers. Then, you follow down the same statute about six lines where it reads or being the owner, lessee or occupant of any room shared tenement, tent booth or building or part thereof, knowingly permits the same to be used or occupied for any of these purposes. Then, on the following pages, Section 582, which is the regular accessory statute and provides the liability in that event. Now, there is no question of what this was -- it satisfied the requirements and accessory too, but there are the particular violations of the law of Illinois that's involved here, excuse me, and the payment was made for the deliberate and expressed purpose of having these crimes committed. So, we comment within this general doctrine referred to by the Court in Lilly, where the expenditures are made themselves in violation of the law. Now, the Court of Appeals reversed the case and held that the expenses were deductible on the ground of their Doyle decision, an earlier case similar -- very large with similar facts, on the theory that where the particular expenses were an integral part of the business operation, they were deducted, but if they were concomitant an they're referred to fines and penalties as concomitant, an example of concomitant, then they would not be. Now, when you get down to it, it's an almost impossible rule to try to apply anything of that character. If you would try to apply it, for instance, in your Textile Mills case of this Court, it seems to us that you would have to hold that the regulation in that case which prohibited a deduction for lobbying could not be valid even though it frustrated a clearly defined public policy, because the whole purpose of that activity was to lobby to the Congress a return of these assets. And they had to hire somebody to do it and they hired their only logical people to do it, the publicist and two lawyers, but this Court said, "The regulation was valid. The expenses were not deductible because they would frustrate such a policy and it was proper for an interpretation of this provision 23 (a)," which the Court said was ambiguous to say that it would not be considered where there was this ordinary and necessary where it would be a frustration of a clearly defined public policy. Now, concomitant is demonstrated by the fines and penalties that the Court referred to. If you would take integral and try to apply it in this situation, then you get down, we think, to the proposition that the more illegal, any business operation is, the more clearly you're going to give him a deduction for whatever expenses he does and -- and specially, if those expenses are violations of law themselves. Now, this is not expenses that carry on this business activity, in order to forward it and thereby indirectly contributed to an illegal activity. These expenditures are in themselves and by themselves, whether this -- these particular respondents had any connection with this business of violation of law and that's the issue involved in this case, whether or not because a man is operating an illegal business or is operating a legal business. He can hire somebody to violate the law and then deduct the amount that he spends for that purpose, either in the case of the recording of the bets or the rental, as a part of his business expense.
Speaker: May I ask you, if that is correct, if it is your position that every expenditure that a man engaged in an illegal business is nondeductible?
J. Lee Rankin: I don't go that far.
Speaker: How could you keep them?
J. Lee Rankin: Well, you don't have that problem in this case.
Speaker: But I think we do. I see no escape. The Government taxes an illegal business. I understand your premise should be that he wanted -- he did this to -- whether it's an illegal business therefore it's not deductible and you also referred and say if he hired somebody. Suppose he had 50 employees in there, are you saying he couldn't deduct to them what he paid them?
J. Lee Rankin: No. Maybe I can illustrate it this way. Assume that there wasn't any statute like 336, insofar as it covered the rental or use of the premises for an illegal purpose or assumed that -- that clause is out of it and assume the other part about recording bets or wages is out of it and you have all of the rest of it. Now, the respondents would be violating the law by carrying on the business, but this would be an entirely different case.
Speaker: Why would that be? This man -- this is to carry on his business -- his business, isn't he?
J. Lee Rankin: He could hire. He would be hiring people to record his bets.
Speaker: Did he pay money for this building?
J. Lee Rankin: Yes.
Speaker: In order to run a gambling establishment?
J. Lee Rankin: Yes.
Speaker: I asked you that because I want to ask you a question that I hope you'll discuss. As far as I can see it the first time, your argument means that the law that the -- that federal tax law is applied to people who run illegal business. It's a gross tax on the income from their business and I suppose that that might raise a rather serious question of constitutionality, wouldn't it?
J. Lee Rankin: Well, that isn't our position. And we don't think that in this case, the Court has to reach that question at all. Because if you did not have this particular clause as to recording bets or as to the use -- permitting the use of premises in the statute, then you would have the person you hired to help you commit the particular illegal act, which is an entirely different situation from hiring a person to violate the law himself independently.
William J. Brennan, Jr.: Well, Mr. Solicitor, the six or seven employees -- these figures at page 3 is it of your brief or six rather?
J. Lee Rankin: Yes, sir.
William J. Brennan, Jr.: Does that represent the total payroll of this operation for the years involved?
J. Lee Rankin: I'm not sure that it did. I assume that it didn't involve --
William J. Brennan, Jr.: That it didn't -- it does not?
J. Lee Rankin: That it didn't involve the chair people and other people that might work in the place.
William J. Brennan, Jr.: So, that -- is -- is that to suggest then that to the extent -- this is not the complete payroll where deductions allowed for other wages paid?
J. Lee Rankin: I -- I don't know the answer to that. But the Court did find that these particular people were participating in this very act -
William J. Brennan, Jr.: The recording of bets?
J. Lee Rankin: -- of recording the bets. And I was trying to draw the difference, the distinction and I'm saying that we don't yet reach the case of the question about the people who would not be in themselves committing a violation of the statute who,if there wasn't such provision of the statute.
William J. Brennan, Jr.: But in others. Your breach says that the services of the employees were performed in the illegal operation of the partnership including the recording of bets.
J. Lee Rankin: Yes, sir.
William J. Brennan, Jr.: Does that mean that there isn't any question of the finding are, that all six or seven and if that's all that's involved in these wages were in fact found to have been in recording the bets?
J. Lee Rankin: Yes. At this part of their activity is the Government's position was recording bets, which brings them to -- in direct violation of this statute which prohibits such an act. And although they might --
William J. Brennan, Jr.: Well, that's to say then as a disallowance of their wages even perhaps though -- but five minutes of an eight-hour day would spend in recording bets?
J. Lee Rankin: Yes, because part of that activity was a direct violation of the statute and they're hired for that purpose. Now, there would be no question of what there might be in such an operation, other expenses that would be involved to include stationary and chair people and other help of various kinds and that question is not involved in this particular case. And if you reach the point so far as the question of a gross tax as distinguished from an income tax, I agree to Justice that's a -- there's a different problem, but I do not think I can reach it in this case at all because --
Hugo L. Black: I thought maybe you did (Inaudible) as I gathered from your argument. The man was running a gambling establishment and that's all he did. He got six employees. Every dime he made was made from that -- him -- from their activities in connection with his joint violation zone. The Government protects his income, but he could get no deduction.
J. Lee Rankin: Well, I'm trying to draw the distinction between the case where there is a violation itself by the particular employees at the time when they're hired for the purpose of violating and the case where they would be nearly helping him to violate the law, which would not be an independent violation by them in so doing.
Hugo L. Black: Now, maybe my illustration is a little exaggerated, because a thought occurred to me that he might be married that he get an exemption from his wife. But he couldn't get any deduction for his expenses?
J. Lee Rankin: Well, that might be a possibility, but it doesn't seem to me, the mere fact that you recognize that he can engage in an illegal activity of wager and conduct it which would be a violation.
William O. Douglas: Well, this is as far as to disallow it as an expense that came with the rental point in this case.
J. Lee Rankin: Yes, sir. That's -- that's part of our position and -- and that's part of the expenses that were disallowed. Now, if he would use his own premises, I think that he would be violating the law himself just by using. In the same way, he's violating the law by making a book. There isn't any question what he violates the law by making book in Illinois. He'd also be violating it by using the premises.
Hugo L. Black: Could he take depreciation on his premises.
J. Lee Rankin: We haven't got that question in this case either. I -- I'd rather wait until we reach that problem. But here is a case where he goes out and hires people for the expressed purpose of violating the law and he hires someone to rent premises. Now, he doesn't have to do that and that's part of the argument. Well, you let this man engaged in illegal activity. I don't think the Government does let him engage in it, but we do tax him for engaging in it.
Hugo L. Black: He authorizes to put up a notice in his gambling house, do you not that he stays there?
J. Lee Rankin: Yes. We go that far. So, there is an assumption that he is engaging in an activity although, I think this Court recognized in passing on constitutionality of it, that there was an element of deterrent that the Congress was trying to reach. But even apart from that, there is -- it doesn't seem to me in that recognition, any recognition of the principal that he has to got out and hire other people to violate the law and that the federal government is approving any such in extension of his activities. Now, it's very interesting if you'll look at the economics of this picture too and it's set out in the record. This operation was close to a million dollars a year for three years in the gross wagers that were taken in. And the gross return on those wagers, on this business was about six and a half -- six and eight tenths percent the first year and it worked down to five and a half, a little over five and half. The last was a three-year and six something second of the three years. Now, that is the return on the amount of money that was bet. That isn't the return like in the ordinary business on the amount of money you got invested in it yourself. So that if you follow a theory that it's all right and approved by the federal government just because you're taxed under the wagering tax law, a man for conducting a wagering business that you approved, the development of that business as much as he can develop by violating any laws of any State or the federal government as a part of it, then you can see how rapidly he increases his property in accordance with the figures right here in this case where he makes such a return proportionately on every dollar that he gets in of wagers.
Hugo L. Black: Where is the (Inaudible)?
J. Lee Rankin: This is in Illinois. Now, the legislative history in regard to this matter is we think equivocally. In the first place, when the 1913 law was passed, the problem of it being discussed by Senator Sterling was not this question of 23 (a) at all. The general policy of the Income Tax Law was being discussed. That was for revenue purposes and that's been recognized by this Court many times, but he was discussing in relation to that, the question of deducting loses from gains and that was the particular discussion there. We think it sheds no light on this particular problem. Now, the 1951 legislative history does, we think, have some bearing upon it. We think it's equivocal and it's not very helpful, but we think it -- we need to deal with it. Because at that time, Senator (Inaudible) proposal was brought before the Congress and that was a package deal. It didn't involve just this question of disallowing any deductions for any illegal business. But it also included the question of registering anybody that would have got more than $10,000 a year from one or more illegal businesses, the maintenance in keeping of records and books and that those records and books have to kept over a period of seven years and that there should be provision for inspection of it. Now, when this came before the Senate, the Senate Committee said that there hasn't been sufficient time for a study of it for them to act on and that was why they didn't act at that time. And we think that the whole picture was so confused as to the number of different problems that were presented to the Congress in that legislation, so that --
Speaker: The Congress (Inaudible)
J. Lee Rankin: There was -- the way it reached the Congress, Mr. Justice, was there was an attempt by Senator (Inaudible) to amend one of the internal revenue measures that was before the Congress and he tried to insert it in that manner which was not the ordinary test of such legislation and some of the arguments were made pro and con at that time and it was discussed about the number of employees that would cause and try to carry it out many other things that really shed no light as to whether or not the Congress had any intention to try to depart from these holdings or the position of the Treasury take in regard to this matter of frustrating, a clearly defined public policy. Then the -- the other reason that we think would contribute in some degree is the proposal and I think it was 1954, the American Law Institute to disallow any deductions of -- that were in connection with an illegal business. And the Congress did not take any action at that time. The Government thinks that the reason -- that the action was not taken was that it was so clearly shown by all of the Court decisions up to that time, the trend and the attitude of the courts, the Tax Court and the other courts, that they would not interpret ordinary and necessary as including deductions for such activities as were frustrating and clearly defined public policy that the Congress didn't think it was necessary to change this Section of the statute which had been so interpreted for great many years. And there is the Tax Court decision. The Board of Tax Appeals cleared that to the early days of the Board in regard to this matter in which they had denied such deductions.
Hugo L. Black: Do you see any difference between the strength of your position in this case and in the others?
J. Lee Rankin: Well, in some ways, I think it's stronger in this case because this is an independent violation of law in both of the amounts of the deduction. And then, I think if you -- you assume that this man couldn't carry on his business without hiring somebody else's premises or without hiring someone else to record the bets. But then, you get into the problem of a gross tax, but --
Hugo L. Black: But you do not get into that in the other cases, do you?
J. Lee Rankin: That's right, you do not. But I don't -- on behalf of the Government, I don't concede that the fact that you recognize that a man can carry on a wagering business includes within it the right to go out and hire people to break the law, which is an independent violation.
Hugo L. Black: Let's supposed he has no right at all. He has no right to do it. He's just an outlaw. He's an outlaw in getting the house. He's an outlaw in purpose. He's an outlaw the people he hires and he gets money from being an outlaw. How can you distinguish between one kind of -- his expenses that on the basis, that it's illegal?
J. Lee Rankin: Well, you get back to the proposition. It seems to me that -- that the whole question of deductions has been held by this Court to be a matter of grace and even then --
Hugo L. Black: But don't -- don't you get beyond the question of deduction here. Do -- is it not in purpose in effect. Let's assume that you have a business. There's nothing but -- it violates the law. He gets no money from anything else. He makes more expenses before anything else. Whatever you call it. Isn't that a gross tax, if you tax him on all the income?
J. Lee Rankin: Well, I think if you -- in order to concede that, you'd have to assume that he had to run his business that way. He had to hire other people to violate the law. That would be the only way.
Hugo L. Black: But in -- in ordinary case if the merchants in the business and not merely do business, we assume that the employees he hires who work for him are needed -- it's only when you show that he did not need them, that you would deprive them of the deduction, which -- what he paid to.
J. Lee Rankin: Well, that's true but there's often times that in violations of laws like bribing and lobbying and all of those things that it's just attractive to violate the law because it -- it helps the business. And there wouldn't be any question, but what was good for the business to violate the law, he could make more money. But still, you don't recognize the right to deduct that as ordinary and necessary expenses.
Hugo L. Black: That was true in the Textile Mills case, but there, this was a legitimate business engaged in the legitimate undertaking to point out he had an isolated transaction. He paid out the money for something which we said violated public policy and he shouldn't have a deduction that's why we construed the statute.
J. Lee Rankin: Well, this --
Hugo L. Black: That's not like this one, is it?
J. Lee Rankin: Well, this particular segment of that business had no one -- no other purpose, except to lobby through under contract this particular legislation to the commerce.
Hugo L. Black: But who was -- who was the taxpayer?
J. Lee Rankin: The Textile Mills.
Hugo L. Black: What were they?
J. Lee Rankin: It was a corporation.
Hugo L. Black: They were a corporation?
J. Lee Rankin: Yes.
Hugo L. Black: And they were engaged in manufacturing textile.
J. Lee Rankin: But this particular segment of their business was a special contract that they undertook -- by which they undertook.
Hugo L. Black: Were they taxed separately?
J. Lee Rankin: No.
Hugo L. Black: It was taxed as a part of their business, growing business?
J. Lee Rankin: Yes. But that portion, their activity, Mr. Justice, was for the illegal purpose and if they had been organized only for that purpose, it would be exactly the same case and we think --
Hugo L. Black: But they were not.
J. Lee Rankin: -- we think that it's comparable to the fact that they have this contract for that special purpose, to try to accomplish this by illegal means.
Earl Warren: Mr. Bernstein.
Eugene Bernstein: Justice Warren, Justices, Solicitor General. Your Honor, as counsel has pointed out, this case has involved a deduction of salaries and rents paid by the taxpayer in the operation of the bookmaking in the State of Illinois, contrary as to what counsel has stated, possibly in this (Inaudible) the total salaries and the total rents paid were disallowed. Well, the record does not indicate the --
Speaker: (Inaudible)
Speaker: There were, Your Honor.
Speaker: (Inaudible)
Eugene Bernstein: There were --
Speaker: (Inaudible)
Eugene Bernstein: They consisted of telephone, wire service, spreadsheets.
Speaker: Like the lights?
Eugene Bernstein: No, we have no electric lights in our case.
Felix Frankfurter: There is (Inaudible)
Eugene Bernstein: Oh this is -- I'm sorry. In one case we -- in the -- in one of the cases, we had electric and the other case, we didn't. The social security tax is on the salaries and wages which were paid. And incidentally, Your Honors, 78% of the total of the expenses comprise the rent and salaries.
William J. Brennan, Jr.: Rent what?
Eugene Bernstein: Rent -- rent rather and -- and the compensation paid for its employees. Twenty-two percent of those expenses were allowed.
William J. Brennan, Jr.: Well now, did they in part consist of wages at 22%?
Eugene Bernstein: No, they do not. There were no wages whatsoever in that 22% either. Now, the petitioner -- the petitioner admits that the services rendered by these employees were in connection with the operation of this business.
William J. Brennan, Jr.: So are the wire services, isn't it?
Eugene Bernstein: That's correct. Now, we concede. We believe that any part of these taxes, any part of expenses are disallowed or should be allowed. We are not trying to shift positions.
William J. Brennan, Jr.: Now, what did you say the others -- where the wire services (Voice Overlap) --
Eugene Bernstein: The wire service which is only -- it could be certain (Voice Overlap) --
William J. Brennan, Jr.: I know what -- I know what it is -- what else besides that?
Eugene Bernstein: It will be spreadsheets --
William J. Brennan, Jr.: Yes.
Eugene Bernstein: (Inaudible) used for the book making.
William J. Brennan, Jr.: What else?
Eugene Bernstein: (Inaudible) sheets. I believe I had another list. The list here is formed spreadsheets, printed and stationary, Social Security taxes, supplies, telephone, repairs, bad checks, pencils, chalks, miscellaneous, depreciation on its furniture and equipment and that's about what it was. Now --
Charles E. Whittaker: Are you saying that Mr. Bernstein, so that I may try to understand, that you think that either all or none should have been allowed?
Eugene Bernstein: That's our position.
Charles E. Whittaker: Then you would have a gross tax, wouldn't you?
Eugene Bernstein: Correct, Your Honor and we may as well say that allows only 22.5% would probably (Inaudible). That is one of the position of the fact that the petitioner is trying to take to avoid pitfall of gross tax, by allowing only approximately less -- about one-fifth of the total expenses incurred in the operation of this business and he is trying to overcome that particular pitfall by evading himself and say, “No, this is not a gross tax.” Now, we do have gross tax, and again, as Your Honor, passed on the wagering law and that is not only a gross tax, that's based on the total wage which were imposed and that particular tax is held to be a deductible item under the income tax law, that list of the regulation is imposed. Now, the petitioner for the first time asserts a rather unique problem that these are independently illegal. Obviously, he is trying to overcome the effect of his acquiescence in the (Inaudible) decision which is in Tenth Tax Court 201. That case, Your Honor, also related salaries and wages deducted by a bookmaker and it involved an identical statute of that of the State of Illinois that rose at the State of Texas.The provisions of the statute were alike. They're both held as being misdemeanor and still, Commissioner acquiesced in that decision. And the result of that -- that acquiescence was to serve as a president for all revenue agents to act and their allowance of salary deductions in cases of a similar nature. What possibly, Your Honor, is maybe what it means of the Commissioner trying to overcome the statement of the Attorney General made before the American Bar Association of Boston in 1953, where it stated the policy of its department. Henceforth, disallowed the reduction of all illegal expenses incurred and illegal enterprises and he also indicated that he had the consent of the treasury department to aid in the formation of that policy. Now, our position is that these expenses are specifically provided in Section 23 (a) (1) (A) by the ordinary and necessary and required. Now, Section 23 (a) (1) (A) provides specifically that all expenses incurred or paid during the taxable years in the operation of any business. Now, it doesn't say throughout the business as pointed out by Judge (Inaudible) in the Heininger case. It places no words of limitation and as specifically this additional language, including reasonable compensation and rents. There's a specific provision. We don't have in this case the similar situation where Congress denied specific deductions when it saw fit to reenforce the sanctions of its statutes such as it didn't wait the stabilization act or in the Defense Production Act or the -- the Defense Production Act amendments of 1950 and 1951. So, when Congress intended to specifically disallow deduction, it's so provided by statute. We also had an income tax law that was pointed out the other day, but the income tax law denied this, the deduction of losses from gaining in excess of the (Inaudible). It cannot be set off against other income. So, we have again a specific manifestation of what the intent of Congress is, by this -- by the legislation which it has enacted and which it comes before this Court. Now, the judgment said in the Heininger case, is about this expense to what have been no business. There would have been no profit. There would have been no income tax, to say that these expenses are not ordinary and necessary, to say that that which gives a light being that ordinary and necessary. And (Inaudible) Your Honor, we have a provision of the income tax law, that said you should keep records of the very purpose of these sheet records, the very purpose of the -- these individuals recording these debts is to keep the particular record. But the Internal Revenue officers, we shall maintain, that we shall keep and those are the specific salaries that are being disallowed. Your Honor, Section 23 (a) does not require that any limitation be placed upon it by any state law or do we have to look as to what the meaning of salary compensation and rents means or any -- nor can the State place limitation on that.
Earl Warren: Mr. Bernstein, were there any fines included in the --
Eugene Bernstein: No. No fines, Your Honor. There never have been fines here imposed.
Earl Warren: Would it make any difference in your legal position that there were fines they --
Eugene Bernstein: As to the fines and penalties, Your Honor, I have a different position and I'm -- I'm following the position of this Court on that.
Earl Warren: You say you do have a different position?
Eugene Bernstein: Yes, on -- on fines and penalties. I don't see a distinction.
Earl Warren: I see.
Eugene Bernstein: Or causes of fines and penalties, we have a different problem which cannot wait in no time. In any of my case, I've argued the Doyle ase and I've argued the -- this case (Inaudible) and I don't recall any type of any fines or penalties being involved.
Earl Warren: Yes.
Felix Frankfurter: But potential fines -- but potential fines and penalties are different.
Eugene Bernstein: Well, these are not potential fines, Your Honor. It is this, the very nature of this expense which makes it possible for this income to be derive from (Voice Overlap)
Felix Frankfurter: I understand that, but -- but there maybe expenditures necessary for a business which also leads to the State authorities to prosecute.
Eugene Bernstein: Your Honor, the income tax law is a revenue measure. It is not intended to please or to supplement the penalties imposed by the States, when they exert such a penalty for violation of their laws. I submit that, Mr. Justice Frankfurter and all --
Felix Frankfurter: I suggest that argument applies to fine. But that isn't your burden?
Eugene Bernstein: Yes.
Felix Frankfurter: All right. Go on.
Eugene Bernstein: Your Honor --
Felix Frankfurter: I'm just trying to point out my own difficulties in -- in realization of the casuistic relevance of this problem.
Hugo L. Black: Did the court below make any findings? Did he find one way or the other on whether this was necessary, an ordinary expense of this business?
Eugene Bernstein: Your Honor, in this -- these particular cases, the Tax Court disallowed the deduction on the theory enunciated by counsel. However, te search of Court of Appeals --
Hugo L. Black: Did they make any findings on that -- the Tax Court. Did it find whether or not these were ordinary andnecessary business expenses?
Eugene Bernstein: They held that they are not, that they're -- they're independently illegal enunciated by --
Hugo L. Black: They didn't stop --
Eugene Bernstein: They did not --
Hugo L. Black: Because they were extraordinary --
Eugene Bernstein: They did what the --
Hugo L. Black: -- ordinary and necessary.
Eugene Bernstein: The Court of Appeals in the Seventh Circuit --
Hugo L. Black: There's nothing here that -- no finding that would justify an argument, that maybe he didn't need to hire these people after all.
Eugene Bernstein: Your Honor, it's all very obvious, that one operating a book could not so operate unless he had employees to accept the wagers (Inaudible) tax rests upon or relies upon.
Hugo L. Black: Did you try this case in the Tax Court?
Eugene Bernstein: No. I did not. Mr. Blair tried it in the Tax Court.
Hugo L. Black: Does the Tax -- is it permissible in the Tax Court to request that findings be made?
Eugene Bernstein: There are findings of the fact, Your Honor.
Hugo L. Black: But there are no findings on this point and that several of our cases have indicated that there should be findings on that point.
Eugene Bernstein: Well, Your Honor, in the Doyle case, there was a specific finding involving the very same statute, which is also in the Seventh Circuit. And there was a finding of fact that these expenses were ordinary and necessary which the case has perceived this case and which is the case in which the Seventh Circuit has followed his line of decisions in these last few cases.
Earl Warren: We'll recess now, Mr. Bernstein.