Court Opinion

ID: 9419539
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:50:01.667409+00
Date Added: 2024-06-11T16:42:10.169559
License: Public Domain

Mr. Justice Black,
dissenting.
Petitioner, a lawyer of many years’ experience, gave up his practice and accepted appointment as a judge upon condition that he run to succeed himself. In campaigning for reelection he incurred certain campaign expenses. These expenses, according to the Circuit Court of Appeals were “legitimate in their entirety,” and “the objective of the expenditures was to obtain a considerable amount of money, over at least a decade of years.” This Court has not reached a contrary conclusion. For our purpose, therefore, we may consider that the expenses were incurred, at least in part, “for the production ... of income.” The literal language of § 121 of the Revenue Act of 1942, 56 Stat. 798, 819, is broad enough to allow a deduction for expenses so induced. That statute, which Congress made applicable retroactively, allows the following deduction, in computing net income:
“In the case of an individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.”
Prior to the enactment of this section, taxpayers in computing net income were not allowed deductions from gross *66income for expenses incurred unless they were “ordinary and necessary expenses paid or incurred ... in carrying on a trade or business.” Congress, by this new section, introduced a new type of deduction, for as the House and Senate Committees said, it allowed “. . . a deduction for the ordinary and necessary expenses of an individual paid or incurred ... for the production and collection of income . . .” Before the 1942 Act, an expense to be deductible had to be “ordinary and necessary” in its relationship to the taxpayer’s business; under the new section it need only be “ordinary and necessary” in its relationship to the taxpayer’s efforts to produce income. Hence, while the words “ordinary and necessary expenses,” defining permissible deductions, remained unchanged in the new section, they were given added content in their new relationship. Obviously, Treasury regulations and decisions limiting the scope of “ordinary and necessary” as applied to business expenses under the old law may be wholly unsuited to define the meaning of those words in their new context, and such rulings and decisions can throw little if any light on the meaning of § 121. Since the enactment of the new section, the two questions essential to determination of deductibility are: Were the expenses incurred in an effort to produce income? Were these expenses, or part of them, “ordinary and necessary” in connection with that effort ? These are in most instances pure questions of fact and in cases such as this are to be determined by the Tax Court. See Commissioner v. Heininger, 320 U. S. 467, 475. The Tax Court did not make findings of fact on these crucial issues, but categorically denied that campaign expenses could be deducted at all. This, I think, was an erroneous interpretation of § 121.
The 1942 Act articulated the purpose of Congress to wipe out every vestige of a policy which denied tax deductions for legitimate expenses incurred in producing taxable income. Taxation on net, not on gross, income has *67always been the broad basic policy of our income tax laws. Net income may be defined as what remains out of gross income after subtracting the ordinary and necessary expenses incurred in efforts to obtain or to keep it. In 1941, this Court upheld in Higgins v. Commissioner, 312 U. S. 212, a finding of the Board of Tax Appeals that one who managed, conserved and maintained his own property was not engaged in a “trade or business” and for this reason was not entitled to deduct expenses incurred in producing his gross income. The effect of this holding was to impair the general Congressional policy to tax only net income. Congress in its Revenue Act of 1942, supra, took note of this impairment and indicated in a most forthright manner its allegiance to the net income tax policy. Except for transactions carried on “primarily as a sport, hobby, or recreation,” see Senate and House Committee Reports, supra, Congress provided a deduction for all ordinary and necessary expenses incurred in the production of income. The language it utilized was certainly far broader than was required to meet the narrow problem presented by the Higgins case. Congress specifically disposed of the Higgins problem by allowing a deduction for the expenses incurred in “. . . the management, conservation or maintenance of property held for the production of income.” Had Congress simply enacted these words, and nothing more, it might properly have been inferred that it intended to grant the type of deduction denied in the Higgins case, and no other. But it provided an additional deduction, in the very same section, for expenses incurred “in the production ... of income.” To hold, therefore, that Congress in this new section was concerning itself only with the restricted issue created by the Higgins case, is to deny any meaning or validity to this latter clause; in a larger sense, such a construction carves out of the section a vital segment which Congress intentionally— or so we must assume — put there.
*68The Court interprets § 121 as not permitting the deductions, without denying that the expenditures were made by petitioner for “the production of income.” This interpretation rests in part on the conclusion that the Section in no wise applies to expenses incurred in “business,” and that the deductions claimed by the petitioner were in relation to a “business” explicitly so denominated by § 48 (d) of the Internal Revenue Code.1 The Court's construction would appear to be quite different from that of the House and Senate committees which reported their construction of the measure to their respective bodies. The reports expressly stated that “The Amendment . . . allows a deduction for the ordinary and necessary expenses of an individual incurred during the taxable year for the production and collection of income . . . whether or not such expenses are incurred in carrying on a trade or business.” We cannot question the special competence of these two committees to interpret their own legislation. Congress therefore apparently intended to obliterate the legal niceties of the “trade or business”, distinction, insofar as they affected deductions for expenses incurred in the “production and collection of income.”
The Court's decision is also grounded upon its reference to congressional policy restricting compaign contributions and political activities by government officials. We are *69not dealing here, however, with campaign contributions made by one person to further the candidacy of another. Besides, Congress has not attempted to regulate expenditures of candidates for state office. I can hardly conceive that we should infer that it wanted to penalize through its tax laws necessary campaign expenses, and thereby condemn a practice of campaigning that is as old as our country and which exists in every state of the Union. Unless our democratic philosophy is wrong, there can be no evil in a candidate spending a legally permissible and necessary sum to approach the electorate and enable them to pass an informed judgment upon his qualifications. This is not, of course, to be taken as denoting approval of corrupt campaign expenditures, or of any of the myriad abuses which beset our systems of election. But we ought not to eviscerate a revenue act, and deny this state official a deduction for expenses incurred in a state election campaign, because Congress has limited campaign contributions in federal elections, and passed restrictive legislation against political activities by federal employees.
The Tax Court too relied upon grounds of public policy. It thought it contrary to “the basic ideology underlying the principles of our government” to hold that a public office constitutes a “trade or business,” although Congress for tax purposes had declared it was. The Tax Court also thought that “under the ban of public conscience and . . . public policy is the contention that expenditures made to promote one’s candidacy for election to public office represent expenses ‘paid ... for the production or collection of income.’ ” Public officials in this country, many of whom must campaign for election, are almost universally paid for their services. That we do pay our public servants is not at all inconsistent with the fact that public service in a large measure represents an honest expression of the social conscience. Nor does individual dependence upon remuneration for such services detract *70at all from the high and uncompromising standards of those who perform public duties. Without monetary rewards office-holding would necessarily be limited to one class only — the independently wealthy. Proposals to accomplish such a purpose were deliberately rejected at the very beginning of the Nation’s history. I deny the existence of a public policy which, while permitting Congress to tax the income of elected public officials, bars Congress from allowing a deduction for necessary campaign expenses.
It is said that Dobson v. Commissioner, 320 U. S. 489, gives some support to the Court’s decision, and that we should not “displace the views of the Tax Court with our own.” Cf. Security Flour Mills Co. v. Commissioner, 321 U. S. 281. The Court’s opinion does exactly that, for it rests in part upon its holding that McDonald as a judge was engaged in “business,” while the Tax Court specifically found that he was not. Neither the Dobson case nor any other to which the Court’s opinion points has indicated that we should automatically accept the Tax Court’s construction of a statute, while repudiating the reasons on which its conclusion rested.
State officials all over this nation have been subject to federal income taxes since 1939. When they run for office, they must necessarily spend some money to advertise their campaigns. We permit private individuals to deduct expenses incurred in advertising to get business. If this petitioner had owned a factory, the operations of which were suspended because of war contracts, and had advertised goods which he could not presently sell, the expenses of such advertising would have been deductible under Treasury rulings.2
*71So long as campaign expenses spent by candidates are legitimate, ordinary, and necessary, I am unwilling to assume that Congress intended by the 1942 Act to discriminate against the thousands of state officials subject to federal income taxes. The language Congress used literally protects petitioner’s right to a deduction; nothing in the legislative history indicates an intent to deny it. Certainly there are abuses in campaign expenditures. But that is a problem that should be attacked squarely by the proper state and federal authorities, and not by strained statutory construction which permits a discriminatory penalty to be imposed on taxpayers who work for the states, counties, municipalities, or the federal government. I think we should reverse and remand this cause to the Tax Court with instructions to pass upon the factual questions which it did not previously determine.
Mr. Justice Reed, Mr. Justice Douglas, and Mr. Justice Murphy join in this dissent.

 Cf. United States v. Pyne, 313 U. S. 127. If the petitioner is to be denied the benefit of the deduction under the 1942 amendment (§ 121 (a) (2)) on the ground that these expenses were incurred in a “business,” then it is difficult to understand why he should be denied the deduction under § 23 (a) (1) (A) of the Internal Revenue Code, which provides deductions for expenses incurred in carrying on a business. On the one hand, the Court denies the deduction because the expenses were incurred in relation to a “business”; on the other hand, the Court denies the deduction as a “business expense” on the ground that his expenses “were not incurred in ‘carrying on’ his ‘business’ . . .” This is a distinction without a difference, two phrases with but a single thought.

 I. T. 3581, 1-2 Cum. Bull. 88 (1942); I. T. 3564, 1-2 Cum. Bull. 87 (1942). The following types of expenses have been held to be deductible as business expenses: “. . . payments by brewers to *71associations to combat prohibition; railroad contributions to an association conducting a campaign to create favorable public opinion; fees paid to organizations to avoid labor trouble and combat unionization, and also union dues; payments to a fund to fight the boll weevil by a taxpayer in the cotton business; membership fees or dues paid by individuals or corporations to a chamber of commerce or board of trade where the membership is employed as a means of advancing the business interests of the individual or corporation; . . . contributions to a chamber of commerce engaged in stimulating and expanding local business; assessments paid by member banks to a clearing house association as a means of furthering their business interests, as well as amounts to be distributed by the association to civic organizations for building up local trade; payments to organizations designed to expand trade; and membership dues paid associations organized to promote the business interests of the members by the collection and dissemination to its members of information and statistics.” 4 Mertens, Law of Federal Income Taxation, 505-7, and eases therein cited. For further analogous business expense deductions, see 4 Mertens, ibid., chapter 25.