Court Opinion

ID: 9447868
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:46:06.483301+00
Date Added: 2024-06-11T17:31:12.779474
License: Public Domain

JOHN R. BROWN, Circuit Judge
(dissenting).
I certainly concur that the amounts involved constituted income to the Taxpayers. The question is whether the *115amounts spent were “ordinary and necessary expenses paid * * * in carrying on any trade or business,” § 162(a), or ordinary and necessary “traveling expenses * * * while away from home in the pursuit of a trade or business,” § 162(a) (2).15
I am also in agreement that we are here concerned with Mr. and Mrs. Thomas as the Taxpayers. We must therefore view it from their standpoint. Deductibility to either of them is distinct from the deductibility to “their” employer, Liberty National Life Insurance Company. I would not, however, go so far, as does the Court, to say that the deductibility status to the employer-corporation of the payments made by it “ * * * is immaterial in determining whether the expenditure of these sums by their recipient is deductible by him * * *.” For reasons which I undertake to develop the considerations making expenditures “ordinary and necessary” to the employer may be part and parcel of a business situation making the spending of such sums equally ordinary and necessary as to the recipient employee. In other words, the one is a factor influencing the other.
But I differ fundamentally as to the denial of full deduction to the husband for all of his expenses. The position of Mrs. Thomas is not so clear, but as to her also I think the expenses were deductible without proration.
I say fundamentally because deductibility depends on the statute, and not on what this or that particular court decision happened to hold. Consequently, I would not urge that our decision here is contrary to the cases pressed by Taxpayers.16 These are but two isolated opinions in what has been described by one Court as a “formidable array of authorities.” 17 A leading text more accurately calls it “a plethora of authorities” 18 especially in view of the aptness of the medical connotation that this is “a morbid condition characterized by an excess of blood in the body” of the law.
A constant recurrence to the words of the statute “ordinary and necessary” in the light of general principles distilled from this mass of material will, in my judgment, put quite a different turn on the activities of these Taxpayers. A brief resume shows, I think, two things: First, the Court disregards these factors; and second, it operates as a fact-finder to reach factual inferences contrary to those of the District Judge who saw and heard all of these witnesses.
To begin with the standard of “ordinary and necessary” concerns whom? The test is not what the Commissioner thinks ought to be necessary or ordinary, or what a court, or its judges, might consider proper. Fortunately for our economy, none of these has the responsibility for running the particular business— personal or corporate — whose income is so essential as a subject of taxation. The test is in terms of the specific taxpayer. It seeks to measure whether, as to him, the questioned expenditures are substantially related to his business venture whose object is making money.
We encounter no difficulty in this record in relating Taxpayer’s usual activity to a “trade or business.” As to this element Taxpayer’s employment fits the simple test that “Every person who works for compensation is engaged in the business of earning his pay * * *.”19 *116And it is without dispute that as a field representative of this insurance company he had long conducted “the enterprise in good faith with an intention of making a profit * * * ” and “of producing income” 20 for himself. Whether the expenditures in question are deductible turns on whether they were “ordinary and necessary.” As to these statutory words “it has been said that” these “mean those expenses which economically are an integral part of a business * * 21 An expenditure “will ordinarily be considered ‘necessary’ if the expenditure is appropriate and helpful in developing and maintaining the taxpayer’s business * * 22 Quite obviously, “the necessity involved is not absolute or inexorable.” 23 Proceeding on the assumption that “a taxpayer will not incur an expenditure unless required or justified by the needs of the business,” the “courts are slow to override the taxpayer’s judgment as to the necessity for incurring the expenditure.” 24
This brings us to the companion term “ordinary” since the expenditure must be both necessary and ordinary. As we are dealing with an “ordinary” expense in the business community “Customs and practices * * * and forms of speech prevailing in the business world of the taxpayer will usually furnish reliable guides * * 25 One thing is clear, the “concept of ‘ordinary’ * * * does not require that the expenditures be either habitual or normal in the sense that the taxpayer either makes or is required to make them often; the expenditure may be ‘ordinary’ even though unique or nonrecurring to the taxpayer affected.” 26 Quite obviously, “the nature and scope of the taxpayer’s business constitutes a factor of considerable importance.” 27 For it “to be ‘ordinary and necessary’, the expenditure must have some reasonably proximate relation to the customary conduct of the taxpayer's business.”28 After pointing out that the decisive distinctions are those of degree and not of kind for which there is no “verbal formula that will supply a ready touchstone” the Supreme Court has made a remarkable pronouncement. It is remarkable because it takes into account in vivid fashion that the statutory term “ordinary and necessary” is to be judged against the habits and customs of American businessmen whether those on the sidelines would consider them prudent or imprudent, wise or unwise. The Court states the statutory standard:
“ * * * 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.” 29
An eminent text sums it up this way.
“All of the foregoing criteria and principles may be said to rest, at least in part, on an underlying implication. That implication is that whether an expenditure is both ‘ordinary and necessary’ will depend upon a determination as to whether a hard-headed businessman would have incurred it under like circumstances. That person is the so-called average hard-headed businessman and not necessarily the taxpayer himself. * * * ” 30
*117How do the facts of these expenditures 31 and Mr. Thomas’ business life match these principles? At the beginning is the bald fact that he had nothing to do with picking out Old Point Comfort, Fort Monroe, Virginia. One on a personal jaunt which is to be treated as a vacation normally has something to do with the selection of the place and the time. More than that, whether to go or not to go was not a matter of choice with him. He was not a free agent — unless, to play on words, he declined to go in which ease he would indeed be a free agent — free of a job and free of Liberty National.
This convention had some of the earmarks of a prize. But it was more than that. It was a command appearance. Its importance is not for us to judge. That judgment was made by the employer, Liberty National. Those “invited” to the Torch Club were outstanding field representatives who had during the preceding year attained certain standards, evidenced high abilities, and made outstanding contributions to the Company. How much real freedom did one invited have to decline the bid? None at all, were he interested in his future employment or .advancement.
The president of Liberty National so "testified without contradiction:
“Q. Does the company require those who qualify and are extended an invitation to attend these [Torch Club] conventions?
“A. Well, we don’t issue an order but in effect it is a requirement. They know good and well enough if they do not attend their chances of promotion is just nil.
“Q. Does the company expect the wives of the agents to attend?
“A. Yes sir.”
How may this Court disregard the positive testimony that employees were required to attend? Certainly we may not do it on any inherent credibility flaws of the witness or his words. The District Judge credited this testimony and expressly found that Liberty National required these people to attend.32 Do we mean to imply that while the president so stated, he really didn’t mean it, or that there is no “proof” that the Company would have been so harsh to one who had the temerity to decline the King's command ?33 And if we presume to do so, from whence cometh our help or competence ?
In the isolation of our judicial tower we are blind indeed to all that goes on in the busy dynamic world of commerce if we do not know — either generally or from what this record teaches — about the contemporary American institution of the “organization man.”34 He is more than a fictional character. He is a modem phenomenon. One weds a wife but he marries a corporation too. Every waking hour the company’s needs, the company’s business, the company’s welfare is drummed into this person whose *118inner satisfactions are likewise finally warped into the corporate image through status symbols of job assignments, titles and prerogatives.
Is one enmeshed in this complex required to risk the decisive displeasure of his superiors by the affront of declining the great honor? Is he not to be judged by the atmosphere in which he exists? With economic consequences so awesome, is it not the risk itself — the very uncertainty of the consequences — which makes his “acceptance” of corporate hospitality a matter of sheer business necessity?
This Court would not hesitate to allow deduction in full if an employee were given a peremptory written order to attend under pain of dismissal or some other form of corporate banishment. That the compulsive pressures, or the genuine apprehension of them, are more sublety exerted does not alter things. In either case the employee responds to the hospitality of the employer because this is essential to economic security and specifically to the retention of progressive employment.
The politicians, the moralists, the psychologists, the sociologists, the psychiatrists may all deplore what has come to pass, but this is, as the Supreme Court said, “a way of life,” and it is that “life in all its fullness”- — -with all of its absurdities and social evils — that “must supply the answer to the riddle.”
For to Mr. Thomas there really never was any riddle. He was faced with no conundrum. Once he was tapped he knew he had to go. His future was uncertain, his promotion frustrated, were he to exercise a choice. As with everything else at Liberty National, Old Point Comfort, the Hotel Chamberlin with its shuffleboard, horseshoes, Ping-pong, billiards, pool and picnic area were now to be the thing he wanted most. Once there, undoubtedly one would have fun. But the decision to go was compelled. It was compelled as a matter of business necessity. It is a pressure which people every day, everywhere in America now undergo. It is ordinary in all and the worst senses.
As American as Bedloe’s Island, hot dogs, Grand Canyon, Rhapsody in Blue, Chatauqua, P.T.A., Golden Gate, Rose Bowl or Wagon Train is this institution of the organization man. Mr. Thomas, a victim and a beneficiary of that system, was under overpowering business compulsion to attend. To him the ancient question “to be or not to be” was resolved by the further one “to go or not to go.” His productive future depended on the answer. As a good businessman with his ear to the ground, he did not have to wait until hearing the president testify in court that the “chances of promotion is just nil” to know what the answer would have to be.
Congress used two simple terms, “ordinary” and “necessary.” They more than comprehend this situation.
The extent to which Mrs. Thomas, the wife, was absorbed into this corporate image serves a dual purpose. First, it shows why her attendance had a financial business purpose distinct from a holiday. Second, it is additional proof of the extent to which the daily life of the husband, the nominal employee, was smothered by the predominate concern of what is best for the Company.
In this respect the Company was following another good American pattern that, to paraphrase an old hymn, “this is a woman’s world.” Women run the home. Women are the teachers, secular and religious. They are den mothers, pack mothers, tribe mothers and home room mothers. Women are the effective civic reformers. A male aspiring for high public office runs on or with his wife. And in the view of Liberty National the success of the husband-employee depends on the wife.
As with another woman this also begins at the beginning. Before an agent is hired, the District Manager must interview the applicant’s wife in her home. Already the seeds of complete, unlimited, untiring, unshared loyalty are being *119planted.35 She is given a booklet especially prepared for wives of prospective employees. The husband, if hired, is employed on a temporary basis for a trial period. At that time the wife receives a welcoming letter which transmits the President’s message entitled “A Family Affair” which leaves little doubt that mother is in this too. After the husband passes his period of probation, the husband and wife each receive letters of notification that employment has become permanent. Again, nothing is casual or accidental. This letter transmits another booklet especially prepared for wives called “The Feminine Touch.”36
But this Company does not risk another Paradise Lost so the barrage continues. The “Torch Magazine” each month, and District Manager Bulletins each week are mailed directly into the home and “in some instances the district managers mail them direct to the wives.” It is no mere euphemism to regard the wife as “a partner to him in this business we are in.” For in addition to this running pressure a special visit by managerial representatives is made each year in the home. In joint consultation with husband and wife the family’s needs are reviewed with the Company representative and translated against required production through the use of Company prepared planning and budget forms.37 What is wanted, what is needed, what may be had, finds common, single expression in the Company’s welfare. As genuine as the employer’s interest is, this is not regarded as corporate philanthropy. In the Company’s eyes the key to the husband’s success is the wife.38
“A. That booklet * * * we send to the wife at the time her husband becomes a permanent employee. The title of this book is ‘The Feminine Touch’ and it tells a wife íd detail some of the things she can do and how she can assist her husband in becoming a successful life insurance man.”
All of this has a substantial bearing on tax deductibility. It, of course, affords ample basis for the Company to deduct its expenditures in wife cultivation. This does not automatically extend like treatment to- the wife as recipient. But when the program is so well organized, the corporate wife propaganda so intense and continuous, is it not reasonable that *120husband and wife conclude it to be imperative that when the employer beckons, the wife must respond? 39
In assaying this we need not consider it in terms of expenditures by the wife as such. Since the husband-employee’s economic future is tied into the Company through the wife, and the Company expects the wife to attend, the cost of her travel and keep is an ordinary and necessary expenditure by the husband in his own right and not merely as a vicarious agent for her.
Thus far what I have written sounds perhaps as though I think that the compulsory attendance of husband and wife was merely to satisfy the corporate ego. On the contrary, I think the evidence is overwhelming — and the Trial Court so found — that these hard-headed businessmen considered that money was best spent by sandwiching in the ceaseless company pitch with the attractions found in a delightful resort area. In other words, it is certainly not for Judges situated where we are to say that no serious business advantage was obtained by Mr. Thomas. Until the Commissioner has to bear the financial responsibility for poor management decision, how is he to say that the participants will not obtain substantial help from this 3-day enforced togetherness as a captive group ?' Congress did not leave it to tax collectors- or judges. The congressional test is in terms of the businessman’s needs and practices. The ordinarily prudent or the ordinarily hard-headed businessman with a good deal of psychology on his side-may well conclude that the “company message” can best be instilled by minimizing formal business sessions and expanding the so-called “free time” for each to receive new transfusions from others whose doubts, if they exist, will hardly be expounded in this atmosphere of good will. After all, on two of the days the day ended with the Company line being drilled in at Company dinners or banquets, and each day started bright and early with “breakfast with delegates” where the bill of fare most likely was insurance as it would have been law had the participants been judges or lawyers.40
“Q. Does the company expect the wives of the agents to attend [the Torch Club]?
“A. Yes sir.”
The District Court categorically found that “The Company requires those * * agents and their spouses to attend the annual meetings of the Torch Club. * * See note 32, supra. And to the wife this was not all free fun. She had the added expenses of a baby sitter, a maid and, of course, the fashionable new clothes.
If the Company thought it important, if the Company required the husband (and wife) to be there, if the husband *121knew that he was expected and would suffer by not attending, his presence was important for two reasons. First, he would receive the benefits of this contact and instruction. Second, he would secure his job and economic future.
It is no answer to suggest that allowance of such deductions is open to abuse. There is scarcely anything in the complex .tax law that is not. Abuses can be checked and prohibited by a determination of courts, either district or tax court, applying general principles to the facts at hand.
Finally the disallowance of deductibility is contrary to the express regulation covering attendance of conventions.41 And the Court’s remand to allow a prorata deduction for Mr. Thomas’ expenses while attending business meetings42 is contrary to the express provision of § 162(a) (2), see note 15, supra, that traveling expenses includes “the entire amount expended for meals and lodging * * * while away from home *
The statute states that “The entire amount expended for meals and lodging” may be deducted. This, as we have recently pointed out in Williams v. Patterson, 5 Cir., 1961, 286 F.2d 333, represents a congressional amendment to liberalize deduction to overcome niggardly rulings of the Revenue Service which attempted to limit deductibility to the excess of expenditures over those which otherwise would have been incurred. In addition, since the Court finds that Mr. Thomas was engaged in his trade or business while attending these business meetings, the question arises how did he get there ? It is positive, and the District Court found, that attendance in business sessions was compulsory.43 The expense of compulsory attendance was not therefore the Smithfield ham and grits for the Company breakfast. To be there he had first to get there. That meant travel and travel meant cost. The regulations cannot take away that which the statute expressly allows. Since, on this Court’s finding, Mr. Thomas was engaged in “the pursuit of [his] trade or business” while attending required business meetings held at a place “away from home,” he was most certainly entitled to deduct the entire cost for meals and lodging for each of the days on which such sessions were held. For like reasons the cost of actual travel is within the express terms of the statute.
In principle 44 the Taxpayer proved, as the District Court found, overpowering business compulsion and the deductions ought to have been allowed.
I therefore respectfully dissent.
Rehearing denied; JOHN R. BROWN, J., dissented.

. 26 U.S.C.A. § 162(a). “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business including
“(j) *****
“(2) traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; * *

. Coughlin v. Commissioner, 2 Cir., 1953, 203 F.2d 307; Alexander Silverman, 1927, 6 B.T.A. 1328, discussed by the Court, 289 F.2d 113.

. A. Giurlani & Brother v. Commissioner, 9 Cir., 1941, 119 F.2d 852, 855.

. 4 Merton’s, Law of Federal Income Taxation § 25.01 at 5. Under 136 subheadings covering 390 pages of text, thousands of cases are listed in hundreds of footnotes.

. Id. § 25.08 at 20.

. Id. § 25.08 at 21.

. Id. § 25.09 at 24, citing Commissioner of Internal Revenue v. Doyle, 7 Cir., 1956, 231 F.2d 635, 637, that “integrality is the test.”

. 4 Merten’s § 25.09 at 24.

. Id. § 25.09 at 24-25.

. Id. § 25.09 at 25.

. Id. § 25.09 at 26.

. Id. § 25.09 at 27 and note 76.2: “An expense may be ordinary though it happen but once in the taxpayer’s lifetime. Deputy v. duPont, 308 U.S. 488, 84 L. Ed. 416, 60 S.Ct. 363 (1940); Campbell v. Fields, 229 F.2d 197 (C.A.5th, 1956).”

. 4 Merten’s, § 25.09 at 29.

. Id. § 29.09 at 31.

. Welch v. Helvering, 1933, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212, 213; id. § 25.09 at 28.

. 4 Merten’s, § 25.09 at 34. This Court has approved this approach. Rittenberg v. United States, 5 Cir., 1959, 267 F. 2d 605, 608.

. The amounts paid directly by the employer and those reimbursed to Thomas by the Company’s advance are all attributed as income. Consequently, the questions in issue are the same as though the amounts were paid out of his pocket with no right of reimbursement.

. The Court formally found: “6. The Company requires those employees, agents, supervisors, superintendents, home office officials who are invited and their spouses to attend the annual meetings of the Torch Club. This requirement is not a condition of continued employment, but failure to attend without . adequate reason is frowned upon and adversely affects bis future promotion.”

. Cf. Ball v. Victor Adding Machine Co., 5 Cir., 1956, 236 F.2d 170, 179 (dissent); Matthew 22:1-14.

. Nothing said is intended as a disparagement of Liberty National. Testimony of its high ranking officers shows that it is abreast with modern management practices, personnel relations, business psychology and the like. Likewise the Torch Club conventions were kept on a high plane. Unlike some others, this Company has not succumbed to the other American institution — the cocktail party — and no alcoholic beverages were served at any of its functions.

. The Agency Vice President testified:
“Q. If you decide to employ a man do you talk to his wife?
“A. We require that * * * our District Manager go into the home and interview the wife of every prospective agent before he is actually employed by the company. This is done to determine whether or not the man’s wife would be sympathic and helpful to him in the business he is going to be in and also for him to explain to the wife the fact this is a business that has irregular hours.”

. The Agency Vice President described it:

. The Agency Vice President stated:
“A. * * * We believe a man’s wife is a partner to him in this business we are in. We definitely feel when we hire a man we hire his wife along with him. A particular example of that is once each year when we put out our program of progress, which is the basic compensation plan for the insurance year, the plans and so on of the company for the next year, we put out some planning forms and budget forms and our managerial people go into each agent’s home and with this agent and his wife they make out their budget for the next year. And this form is so made that they convert his monetary needs into production that he must produce the next year. And then of course the wife and he together keep the records on how they are progressing during the year. So we take the wife very closely into our business.”

. The Agency Vice President stated:
“A man’s wife who is not sympathic with him in his business can have a tremendous influence on him. He would come home late and she would say why aren’t you here on time, and he would say I am trying to make a living for you, an unappreciation of course that affects his morale.
Earlier he stated that less than 1% of unmarried men were hired. They rely on married men because “We find that this is a business * * * that requires an awful lot of a man. He lives in a unique type of atmosphere and he needs some ballast for his morale and it is our contention that a wife can assist tremendously and help him to keep his morale high and keep him moving and thinking positively about this business.”

. It bears repeating that the President testified:

. The Agency Vice President testified:
“Q. In planning these programs [Torch Club] what factors do you consider?
“A. Well just exactly what we are trying to do with our men, we are trying to motivate them to do a good job * * and to use their potential ability * *. More than that, attendance at this Torch Club gives the fellow an opportunity to know other outstanding men and exchange ideas with those people * * *. Knowledge of course is one of the purposes of the Torch Club. We of course have outstanding speakers to attend the meeting. And we try to give them instructions to go back and do an even better job when they get back home. One of the most valuable parts of the Torch Club convention is the fact that these agents come there and [get] to rub shoulders with other outstanding men in our company who are doing a good job and get the opportunity to exchange ideas * * *. And then the fact that they are there with the Home Office officials and the Directors of the company. * * * I think every man that attends a convention leaves * * * a little bit more sold on the company. I think this might be interesting as far as statistics are concerned. * * * We found that 60% * * * of our total agency organization have attended one of these Torch Club conventions and 83% of all of the men who terminated in our company have never attended one of these meetings. Eighty-three percent who terminated have never been there. So 17 percent is all who have terminated of the Torch Club organization.”

. Regulation § 1.162-2 (d). “Expenses paid or incurred by a taxpayer in attending a convention or other meeting may constitute an ordinary and necessary business expense under § 162 depending on the fact and circumstances of each case. No distinction will be made between self-employed persons and employees. The fact that an employee uses vacation or leave time or that his attendance at the convention is voluntary will not necessarily prohibit the allowance of the deduction. The allowance of the deductions for such expenses will depend upon whether there is a sufficient relationship between the taxpayer’s trade or business and his attendance at the convention or other meetings so that his is benefiting or advancing the interests of his trade or business by such attendance.
If the convention is for political, social, or other purposes unrelated to the taxpayer’s trade or business, the expenses are not deductible.”

. The Court states: “The taxpayer will be allowed a prorata deduction for the amount of time spent at the business meetings, but no deduction will be allowed for this travel expenses.” Citing in footnote 13 Reg. 1.162-2 (b) (1), 289 F.2d at page 114.

. The Court formally found “attendance of those present upon the scheduled program is required and plaintiffs did so attend.”

. I have not undertaken to consider specifically the item of $12.92 for the sightseeing trip to Williamsburg, Virginia. Perhaps other considerations apply as to it.