Court Opinion

ID: 4481826
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:07.619469+00
Date Added: 2024-06-11T07:57:58.134960
License: Public Domain

Steeeett, J., dissenting: I respectfully dissent from the holding reached by the majority for the reasons sot forth below. As has been made clear the issue here is the deductibility under section 162 of certain election expenses incurred in 1965 by petitioner James Carey. Paraphrased, section 162(a) allows a deduction for all expenses Avliich are (1) ordinary and necessary, and (2) incurred in carrying on (6) a trade or business. Treating these requirements in reverse order, it cannot be fairly disputed that petitioner was in the trade or business of being a labor leader. This conclusion is made apparent by reference to the majority’s own Findings of Fact found on page 478 and I do not interpret its opinion to hold to the contrary. Further, such a determination is in accord with the many court decisions which have held that an individual may be in the trade or business of being a corporate executive. See Trent v. Commissioner, 291 F. 2d 669, 674 (C.A. 2, 1961), and cases cited therein. Moving backward to (2) above, it has been frequently stated that “ ‘carrying on any trade or business’, within the contemplation of [sec. 162] * * involves holding one’s self out to others as engaged in the selling of goods or services.” Deputy v. duPont, 808 U.S. 488, 499 (1940), concurring opinion of Justice Frankfurter. Since the early 1980’s petitioner has held himself out to be a labor leader and has over the years engaged in continuous activities in furtherance of his trade in mostly elected, but some nonelected, capacities. That such service was at all times profitable in terms of receiving a salary can be safely assumed. It seems clear, then, that the funds expended in 1965 were an integral part of his activities in carrying on his trade or business and boro tho requisite nexus to income. Nothing could be less remote, no connection could be more taut than the relationship between election expenditures and the compensation accompanying the office sought. With his long success as a labor leader, petitioner could reasonably anticipate that any dollar spent in an election expense would result in his continuing to draw a salary as president of the union. Surely when an cs! ablislied labor leader campaigns for a union office, he is carrying on a basic element of his trade. Finally, even though it is found that the expenses at issue were incurred by petitioner in carrying on his own trade, such expenses still must bo ordinary and necessary to bo deductible. Here, wo must be realistic, election expenditures are frequently the sine qua non of winning. Any income flowing from victory can, almost inevitably, be attributed in part to the campaign expenditures. To be “ordinary and necessary” the expenses must be reasonable. Commissioner v. Lincoln Electric Co., 176 F. 2d 815 (C.A. 6, 1949). Petitioner deducted an amount of $16,070.22 as his share of the campaign expenses designed to reelect him to an oiflce bearing a 2-j^ear term with an annual salary of $25,500. The expenses in relation to the prospective income must be deemed reasonable. There was no effort here to “buy” an election, and the restriction on “reasonableness” would prevent anyone from deducting election expenses if there were such an effort. The majority would position this case somewhere between McDonald v. Commissioner, 323 U.S. 57 (1944), and David J. Primuth, 54 T.C. 374 (1970). I view the case as being more between McDonald, supra, which disallowed a deduction for election expenses of a would-be judge, and Graham v. Commissioner, 326 F. 2d 878 (C.A. 4, 1964) 1, which allowed the deduction of proxy expenses designed in part to elect the taxpayer to a corporate board of directors. The McDonald disallowance of election expenses incurred in running for public office has been interpreted as being based on public policy.2 Mays v. Bowers, 201 F. 2d 401 (C.A. 4, 1953). See 4A Mertens, Law of Federal Income Taxation, sec. 25.21. Certainly, as the majority itself points out on page 480, the Supreme Court seemed to be limiting its opinion to the facts there at hand and leaving to other courts the detailed analysis of special circumstances. Respondent, too, it would seem, has limited his application of McDonald to its facts. Certainly his acquiescence in Furner v. Commissioner., 393 F. 2d 292 (C.A. 7, 1968), as stated in Rev. Rui. 68-591,1968-2 C.B. 73, recognizes that an employee’s expenses, to be deductible, need not necessarily be related to any current employment. See also Rev. Rui. 60-223,1960-1 C.B. 57. The application of public policy considerations to disallow the deduction of otherwise allowable items should be restricted. For the future, at least, it has been, see S. Rept. No. 91-552, 91st Cong., 1st Sess. (1969), 1969-3 C.B. 597, which accompanied the Tax Reform Act of 1969. There is no need to disallow the election expenses of a union official on the basis of public policy any more than those of a corporate officer. Unions are much like corporations. The majority emphasizes the governmental regulation of unions; the short answer to that is a reference to the Securities Exchange Commission as illustrative of the governmental regulation of the activities of corporations. Public policy considerations should be limited to campaign expenses incurred in running for public office. In Welch v. Helvering, 290 U.S. 111, 115 (1933), the Supreme Court, in discussing a predecessor of section 162, said: “The standard set up by the statute is not a rule of law; it is rather a way of life. Life in all its fullness must supply the answer to the riddle.” Surely it is a way of life, in any effort to win a contested union election (or any contested election for that matter), to cast “honest bread” upon the waters, hoping to bring to shore the emoluments and other perquisites of the office at stake. Where the “cast” has been reasonable in amount and in furtherance of one’s trade, there is no justification for ignoring the facts of life by denying the business nature of the expenditure. If the election effort proves unsuccessful the nature of the expenditures, obviously, has not been altered. From the foregoing, it is apparent that I would allow the deduction at issue as readily falling within the scope of section 162(a). Fay, DawsoN, SimpsoN, and Qtjualy, //., agree with this dissent.   while the Graham case dealt with the deductibility under sec. 212 of the expenses there in issue, “No reason appears why a different construction should be given to the same language in Section 162(a).” Locke Manufacturing Companies v. United States, 237 F. Supp. 80, 87 (D. Conn. 1964). It must be conceded that the court in Graham discussed the question of deductibility mainly in terms of the taxpayer’s stock holdings. Nevertheless, part of the expenses at issue related to his seeking election to the board of directors and, as noted above, were allowed.    A review of the briefs filed with the Supreme Court reveals that the parties framed the issue as one involving public policy.