Court Opinion

ID: 9446516
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:57:13.386342+00
Date Added: 2024-06-11T17:30:41.022001
License: Public Domain

MURRAH, Circuit Judge,
dissenting.
Admittedly, the decisive question is whether these expenditures, otherwise deductible as ordinary and necessary business expenses under Section 162(a) of the Internal Revenue Code of 1954, are nevertheless nondeductible in Oklahoma because they frustrate a sharply defined public policy of that state with respect to the sale or disposition of intoxicating liquor. While the deductibility of expenses incurred in this manner is eon-cededly a matter of legislative grace, their nondeductibility in Oklahoma for reasons of public policy is assuredly a matter of judicial fiat. No considerations of national public policy forbid the deduction.
We know that not every business expense which is in some way tainted with illegality is per se rendered nondeduetible. Commissioner of Internal Revenue v. Sullivan, 356 U.S. 27, 78 S.Ct. 512, 2 L.Ed.2d 559. The test of nondeductibility is one of degree of the severity and immediacy of the frustration of a sharply defined public policy of a state. Tank Truck Rentals, Inc., v. Commissioner, 356 U.S. 30, 78 S.Ct. 507, 2 L.Ed.2d 562.
I agree with the distinguished Oklahoma trial judge that the allowance of the claimed deduction does not severely and immediately frustrate any sharply defined public policy of Oklahoma.
It is conceded that under Oklahoma law the purchase of the liquor was not a crime, and the expenditure sought to be deducted here was not itself unlawful. It is said, however, that the taxpayer here “deliberately and knowingly” patronized an illegal business resulting in a “severe and immediate frustration of state policy.” The immediacy of the frustration is said to lie in the fact that “a law violation directly preceded and directly followed the expenditure claimed to be deductible.” Nondeductibility is thus made to rest upon a critical interpretation of Oklahoma law to the effect that the furnishing of liquor to business guests is a violation of the prohibitory laws. Relying on Dawson v. State, Okl.Cr., 273 P.2d 154, and allied cases, the majority draw a distinction between the possession of *681liquor in Oklahoma for personal use and business purposes.
From these decisions, it does indeed seem logical to conclude that the Oklahoma courts would sustain a criminal charge for serving intoxicating liquor to business guests in one’s own home. It is significant for our purposes, however, that as far as we know, no such charge has ever been reported in more than fifty years of prohibition in Oklahoma. It seems only fair to assume, therefore, that at the enforcement level, at least, the prohibition laws have not been construed so severely.
When the Oklahoma law is thus construed in the context of human conduct, it is extremely doubtful that the taxpayer has severely and immediately frustrated any very well defined public policy of Oklahoma with respect to the prohibition laws. As one living in the state since the very inception of the law, and as one claiming some acquaintance with the mores of the community, I certainly cannot say so.
This is not to say that the letter of the law is subordinate to its observance so that a law honored in its breach does not reflect public policy. It is to say that the law is interpreted not only by the courts, but also by the mores of the community wherein it is effective. Indeed, the people make the law, and by their conduct construe it to reflect the public policy of the state.
This transaction does not bear the stig-matism or the culpability of unlawful influence as in Finley v. Commissioner, 10 Cir., 255 F.2d 128; Harden Mortgage Loan Co. v. Commissioner, 10 Cir., 137 F.2d 282; Cohen v. Commissioner, 10 Cir., 176 F.2d 394. Certainly when measured in degrees of frustration case by case, the frustration of state policy here is no more severe or immediate than the illegal expenditure for rent on a gambling establishment held deductible in Sullivan.
I would affirm the trial court.