Court Opinion

ID: 4487240
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:00:39.305901+00
Date Added: 2024-06-11T14:54:08.213276
License: Public Domain

*215OPINION.
James:
The question is whether under all the circumstances set forth in our findings of fact the amount actually paid by the decedent taxpayer to defend himself against the criminal prosecution for perjury is an ordinary and necessary business expense or is a personal expense. If it is the former, it is deductible in determining his net income; if the latter, it is not deductible.
*216The Commissioner asserts that it is a personal expense, because, as we understand, the crime charged is necessarily a personal crime and the defense thereto can not in the nature of things be a matter of business. Manifestly the commission of perjury can, under no circumstances, be recognized as part of a taxpayer’s business; and so the expense incident to such criminal activity can likewise not be recognized. We must regard this as written into every statute, especially as to such common crimes as are prohibited generally throughout the land — those mala in se, which have immemorially been regarded as contrary to public welfare. It would be an anachronism to say that such an act, so inimical to the public interest as to justify punishment for its commission, may at the same time be so recognized that the expense involved in its commission is sanctioned by the revenue law as an ordinary and necessary expense of carrying on a business.
But in this case there has been no crime in contemplation of law— a lie was told on the witness stand, and an indictment, trial, disagreement and the discharge of the defendant have followed. Under such circumstances, may the defendant claim as an ordinary and necessary expense of his business a deduction of the cost of defending himself against this charge ?
We are dealing here with the age-old question of proximate cause. If the charge of perjury proximately resulted from the business carried on by George Backer, it may be conceded that the expense of defense against that charge was an ordinary and necessary expense of carrying on his business. If, on the other hand, the business of contracting was not proximately related to the charge of perjury, then the cost of defense was not a business expense and may not be deducted as such in the taxpayer’s income-tax return.
We have already decided in the Appeal of Frank H. Sullivan, 1 B. T. A. 93, that the cost of operating an automobile between one’s place of business and his residence is not an ordinary and necessary expense. Fundamentally, the reason for this is that the proximate cause of the automobile transportation is not the place of location of the business but the place of location of the residence. Nevertheless, if one ignores the element of personal choice in the selection of a place of residence, it is possible to support a claim for a deduction such as that in Sullivan's Appeal with persuasive reasoning. It is a fact that if men are carrying on business in a large city and desire to surround themselves with the comforts of life to which their earning capacity entitles them, they must select a residence far removed from their place of business and must provide themselves in some manner or other with the means of transportation thereto.
It is true that Backer, being a prudent person, chose, when called before the Lockwood Investigating Committee, to lie rather than to incur the hostility of a powerful and unscrupulous group of labor leaders and the inevitable jeopardy to his person and to his fortune. It is equally true that a man of courage and a proper sense of civic responsibility would neither have paid the bribe in the first place, nor lied about it in the second.
Business expenses of the ordinary and legitimate kind are not matters of choice in the broadest sense of the word. It is true that a business man may choose to buy or not, but if he does not buy, he *217does not sell; it is true that be may choose to employ or not, but if he does not employ labor and other assistance, he does not produce commercially valuable results. We are not willing to concede that the carrying on of business in the ordinary manner in the city of New York or elsewhere, under the Government of the United States, is necessarily accompanied by the commission of illegal acts or by the accusation of the commission of such acts whereby business men are subjected at least to the charge of the commission of crimes. We doubt if business men generally would concede that bribery and lying are ordinary and necessary business acts. If they are not, then the cost of bribes and lies are not ordinary and necessary business costs. We do not believe that it is in the interest of sound public policy that the commission of illegal acts should be so far protected or recognized that their cost is regarded as a legitimate and proper deduction in the compution of net income under the revenue laws of the United States.
But it is said that Backer did not claim this deduction as a guilty man, but as an innocent one. As we view the case, it is wholly immaterial whether he was innocent or guilty. The question is whether the act whereby he laid himself open to the charge of perjury was one which was ordinarily and necessarily committed in the course of his business. We are unable to see any proximate connection between the two.
All members of the Board concur, except StekNhageN and Tkus-sell, who dissent, and Smith, who took no part in the consideration and determination of the a.ppeal.