Opinion of the Court
Benjamin N. Cardozo, delivering the Court's opinion, held that the expenses were too personal, were too bizarre to be ordinary, and were capital. He did not consider them "ordinary and necessary business expenses" and, therefore, not deductible under Section 162 of the Internal Revenue Code.
This case is frequently cited for its dictum describing the meaning of the term "necessary" in Section 162 as requiring that expenses merely be "appropriate and helpful [in] the development of the [taxpayer's] business." Cardozo submits that determining what constitutes a necessary expense can be enormously difficult: "life in all its fullness must supply the answer to the riddle."
The court also considered the question of whether Welch's expenses were current expenses or investments which should have been capitalized. Although the case was eventually decided on other grounds, the idea that the expenses should have increased the basis of the business as capital expenses, with no immediate deduction but the potential for depreciation losses over time may also have influenced the court.
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture, or an automobile is often referred to as an expense. An expense is a cost that is "paid" or "remitted", usually in exchange for something of value. Something that seems to cost a great deal is "expensive". Something that seems to cost little is "inexpensive". "Expenses of the table" are expenses for dining, refreshments, a feast, etc.
Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. The difference between deductions, exemptions, and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax.
The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. An alternative tax applies at the federal and some state levels.
Generally, expenses related to the carrying-on of a business or trade are deductible from a United States taxpayer's adjusted gross income. For many taxpayers, this means that expenses related to seeking new employment, including some relevant expenses incurred for the taxpayer's education, can be deducted, resulting in a tax break, as long as certain criteria are met. On average, United States job seekers can spend upwards of $300 per month in related job-seeking services.
In Jenkins v. Commissioner, T.C. Memo 1983-667, the U.S. Tax Court held that the payments Conway Twitty, a country singer, made to investors in a defunct restaurant business known as "Twitty Burger, Inc." were deductible under § 162 of the Internal Revenue Code as ordinary and necessary business expenses of petitioner's business as a country music performer.
Treasury Regulation 1.183-2 is a Treasury Regulation in the United States, outlining the taxes owed from income deriving from non-business, non-investment activity. Expenses relating to for profit activities, such as business and investment activities, are generally tax deductible under sections 162 and 212, respectively, of the Internal Revenue Code. However, expenses relating to not for profit activities, such as hobbies, are generally not tax deductible.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992), was a United States Supreme Court case in which the Court held that expenditures incurred by a target corporation in the course of a friendly takeover are nondeductible capital expenditures.
Commissioner v. Flowers, 326 U.S. 465 (1946), was a Federal income tax case before the Supreme Court of the United States. The Court held that in order to deduct the expense of traveling under § 162 of the Internal Revenue Code, the expense must be incurred while away from home, and must be a reasonable expense necessary or appropriate to the development and pursuit of a trade or business. In this case, the attorney in question could only deduct traveling expenses from her gross income when the railroad's business forced attorney to travel and live temporarily at some place other than the railroad's principal place of business. Where attorney preferred for personal reasons to live in a different state from the location of his employer's principal office, and his duties required frequent trips to that office, the evidence sustained Tax Court's finding that the necessary relation between expenses of such trips and the railroad's business was lacking.
Midland Empire Packing Company v. Commissioner, 14 T.C. 635 (1950), was a case in which the United States Tax Court ruled that Midland Empire Packing Company was permitted to deduct the costs of lining its basement walls and floor. The costs were held to be repairs, and thus deductible as an ordinary and necessary business expense under section 162(a) of the Internal Revenue Code.
Pevsner v. Commissioner, 628 F.2d 467 is a United States federal income tax case before the Fifth Circuit. It dealt with the issue of whether clothes purchased solely for use at work could be treated as a business expense deduction on a taxpayer's return.
Under the United States taxation system, an enterprise may deduct business expenses from its taxable income, subject to certain conditions. On occasion the Internal Revenue Service (IRS) has challenged such deductions, regarding the activities in question as illegitimate, and in certain circumstances the Internal Revenue Code provides for such challenge. Rulings by the U.S. Supreme Court have in general upheld the deductions, where there is not a specific governmental policy in support of disallowing them.
Commissioner v. Groetzinger, 480 U.S. 23 (1987), is a decision of the Supreme Court of the United States, which addressed the issue of what qualifies as being either a trade or business under Section 162(a) of the Internal Revenue Code. Under the terms of § 162(a), tax deductions should be granted "for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business for tax purposes." However, the term "trade or Business" is not defined anywhere in the Internal Revenue Code. The case of Commissioner v. Groetzinger examined what is required for an activity to rise to the level of a "trade or business" for tax purposes. The particular question presented in this case was whether a full-time gambler who made wagers for his own account was engaged in a "trade or business."
Internal Revenue Code § 212 provides a deduction, for U.S. federal income tax purposes, for expenses incurred in investment activities. Taxpayers are allowed to deduct
all the ordinary and necessary expenses paid or incurred during the taxable year--
United States v. Correll, 389 U.S. 299 (1967), is a case in which the United States Supreme Court ruled 5-3 that in order for the taxpayer to be allowed to deduct the cost of his meals incurred while on a business trip, the trip must have required him to stop for sleep or rest.
Section 162(a) of the Internal Revenue Code, is part of United States taxation law. It concerns deductions for business expenses. It is one of the most important provisions in the Code, because it is the most widely used authority for deductions. If an expense is not deductible, then Congress considers the cost to be a consumption expense. Section 162(a) requires six different elements in order to claim a deduction. It must be an
Grynberg v. Commissioner, 83 T.C. 255 (1984) was a case in which the United States Tax Court held that one taxpayer's prepaid business expenses were not ordinary and necessary expenses of the years in which they were made, and therefore the prepayments were not tax deductible. Taxpayers in the United States often seek to maximize their income and decrease their tax liability by prepaying deductible expenses and taking a deduction earlier rather than in a later tax year.
Taxation of illegal income in the United States arises from the provisions of the Internal Revenue Code (IRC), enacted by the U.S. Congress in part for the purpose of taxing net income. As such, a person's taxable income will generally be subject to the same Federal income tax rules, regardless of whether the income was obtained legally or illegally.
Smith v. Commissioner, 40 B.T.A. 1038 (1939) is a United States tax case discussing the boundaries of tax deductibility.
United States v. General Dynamics Corp., 481 U.S. 239 (1987), is a United States Supreme Court case, which hold that under 162(a) of the Internal Revenue Code and Treasury Regulation 1.461-1(a)(2), the "all events" test entitled an accrual-basis taxpayer to a federal income tax business-expense deduction, for the taxable year in which (1) all events had occurred which determined the fact of the taxpayer's liability, and (2) the amount of that liability could be determined with reasonable accuracy.
