Court Opinion

ID: 9419071
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:45:34.605308+00
Date Added: 2024-06-11T12:43:44.476398
License: Public Domain

Me. Justice Frankfurter,
concurring.
What the activities of a taxpayer are is an issue for determination by triers of fact. Whether such activities constitute a “trade or business” as conceived by § 23 (a) of the Revenue Act of 1928 (45 Stat. 791, 799), is open for determination here unfettered by findings and rulings below except for the weight of the intrinsic authority of all lower court opinions. To avail of the deductions allowed by § 23 (a), it is not enough to incur expenses in the active concern over one’s own financial interest. “ . . . carrying on any trade or business,” within the contemplation of § 23 (a), involves holding one’s self out to others as engaged in the selling of goods or services. This the taxpayer did not do. Expenses for transactions not connected with trade or business, such as an expense for handling personal investments, are not deductible. It is otherwise with losses. § 23 (e) (2). Without elaborating the reasons for this construction and not -unmindful of opposing considerations, including appropriate regard for administrative practice, I prefer to make the conclusion explicit instead of making the hypothetical, litigation-breeding assumption that this taxpayer’s activities, for which expenses were sought to be deducted, did constitute a “trade or business.”
Mr. Justice Reed joins in these views.
Mr. Justice Roberts :
I feel constrained to state my views, not because this case raises any important issue of law which should be *500settled by this court; but, on the contrary, because I think it presents a question the answer to which depends solely upon the facts disclosed by the record. Decision of the controversy cannot be helpful in the administration of the Revenue Acts or set any important precedent. I think the writ should not have been granted and that it now should be dismissed as improvidently granted. The amount of taxes involved or the insistence of the Government that the court below erred in its application of the law to the facts are not adequate reasons for review. There is no dispute as to principle and no conflict with any base in the application of any principle.
■The function of this court is to resolve conflicts of decision and to settle important principles of law. The discretionary power of this court to review judgments of lower federal courts was not intended to-be exercised in every case where those courts have adjudicated the conflicting claims of the parties, which involves no important principle of law and no conflict of decision amongst the federal courts. Our rulés adopted to carry, out the policy of the statutes granting the power to bring cases here by certiorari have apprised the Bar and the public that w will not take cases fully heard and adjudicated below the mere purpose of reexamining the correctness of result. (See Rule 38, piar. 5.)
The dominant purpose evidenced by the income statutes is to tax net income. The policy is to ci against gross income the expenses of the business wh begets earnings. The taxpayer is entitled to deduct th which he reasonably and in good faith expended in tin effort to realize a profit. The revenue acts have always characterized deductible expenses as the ordinary and necessary expenses of the business,' incurred and paid during the taxable year. The opinion assumes that the expenditure here in question was necessary in the conduct of the taxpayer’s business but holds that it was not an *501ordinary expense of that business. Obviously what is an ordinary expense of a given business must depend upon the nature and scope of the business, the nature and occasion' of the expenditure, and other considerations which will emerge in each specific casp. Necessarily the decision of one case will have slight, if any, bearing upon the proper decision of another. If this court is to take under review every dispute in which the Government and a taxpayer differ as to whether a given expenditure is an ordinary or an extraordinary expense of the taxpayer’s business we shall be involved in the decision of myriad cases, each turning upon its own facts, without furnishing any light to the taxpayers for their future guidance. I think this is the result of the court’s opinion. It is admitted that the fact that the expenditure occurred but once in the taxpayer’s experience does not render it éxtraordin-ary. It must be admitted that the fact that it is' a large transaction does not render it extraordinary. What the opinion does, in the upshot, is to canvass all the circumstances and reach, as I think, a conclusion based solely upon the peculiar facts of this single case. We have repeatedly warned the Bar and the public that this we will not do because we do not sit for any such purpose.
An added reason fpr refusing to decide the case is the admission that the Treasury and the Board of Tax Appeals in years past have held a similar expense incurred in earlier years an expense of the taxpayer’s business.. In a matter resting so much in judgment and discretion as the determination of what is ordinary and what extraordinary expenditure in a business the weight of a continued administrative construction is of peculiar importance; and we ought not now depart from the rule long observed that such practice is entitled to high consideration at the hands of the courts and should not be overturned unless clearly wrong and for the most cogent reasons.
*502Since the case has been taken and considered on the merits I think the judgment below should be affirmed. I need add little to the opinion of Judge Maris of the Circuit Court of Appeals, with which I agree. The taxpayer borrowed stock in order to sell it for cash to others. His contract obligated him either.to return the stock or to pay the carrying charges to the lender. What he paid was not technically interest but it was an expense necessary to his obtaining and using the stock. He had several alternatives: to pay the annual carrying charges, or to default, and, in that case, to go into the market to buy the stock and return it to the lender or to pay the lender the value thereof.
What was there extraordinary about this transaction as compared with the borrowing of any commodity other than stock for a business reason and with a business purpose? In the conduct of every business situations arise which must be met. The circumstance that such a situation had not theretofore arisen, or that the transaction was the first of its kind in the respondent’s business experience, does not render it extraordinary in the sense in which the statute uses the term. The limitation placed by Congress upon the types of expenditures made deductible was intended to' prevent evasion of payment of tax on true net income, which confessedly was not a motive in the present instance. I think that under the guise of enforcing the plain mandate of the statute the court is really reading into the law what is not there and what Congress did not intend to place there.
To suggest, even by indirection, that perchance the taxpayer’s expenditure may be treated as a capital expenditure is, in my judgment, to keep the word of promise to the ear and break it to the hope. In my. view the carrying charge of the taxpayer’s loan was either an ordinary expense of his business or it was nothing of consequence under any provision of the statute.
Mr. Justice McReynolds joins in this opinion.