Court Opinion

ID: 4495833
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:32.358859+00
Date Added: 2024-06-11T15:04:03.039706
License: Public Domain

Smith,
dissenting: In support of its conclusion that the petitioner is not entitled to deduct from gross income of the fiscal year ended July 31, 1930, the $2,000 bonus paid in obtaining a loan of $3,000, the Board relies upon Welch v. Helvering, 290 U. S. 111. I do not think that case stands for the proposition for which it is cited. In that case Welch made payments upon debts of a corporation which had failed and of which he had been the secretary. He made these payments “ in order to reestablish his relations with customers whom he had known when acting for the Welch Company and to solidify his credit and standing.” Welch made them of his own volition. The evidence does not show that they were made in the earning of net income. The Supreme Court in the above cited case observed:
* * * Now, what is ordinary, though there must always be a strain pf constancy within it, is none the less a variable affected by time and place and circumstance. Ordinary in this context does not mean that the payments must be habitual or normal in the sense that the same taxpayer will have to make them often. A lawsuit affecting the safety of a business may happen once in a lifetime. The counsel fees may be so heavy that repetition is unlikely. None the less, the expense is an ordinary one because we know from experience that payments for such a purpose, whether the amount is large or small, are the common and accepted means of defense against attack. * * *
I am of the opinion that the payment of $2,000 made by the petitioner during the fiscal year ended July 31, 1930, does not fall in the same category as the payments made by Welch. As shown by the stipulated facts, the petitioner was in a tight place. It had to secure a loan of $3,000 in order to continue in business. If the bank had charged it interest of $2,000 for the loan, can it be doubted that *276the payment of the $2,000 would be a deductible expense? Cf. Jones Syndicate v. Commissioner, 23 Fed. (2d) 833.
I do not think that it can be doubted that under the opinion of tbe Board tbe petitioner is required to pay income tax upon an amount of net income greater by $2,000 than the petitioner received from the conduct of his business. I can not believe that it was the intention of Congress that the term “ ordinary and necessary ” expenses should be so narrowly construed as to deny to a taxpayer the deduction of an amount which a taxpayer has paid to secure a loan to carry on his business. Cf. Kornhauser v. United States, 276 U. S. 145.
TRAmmell and Arttndell agree with this dissent.