Welch v. Helvering case brief
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290 U.S. 111, 54 S. Ct. 8, 78 L. Ed.
212, 1933 U.S.
CASE SYNOPSIS: Certiorari was granted
to the United States Court of Appeals for the Eighth Circuit to
review the affirmance of an action by respondent, the Commissioner of
the Internal Revenue Service, disallowing deductions in the
computation of petitioner taxpayer's income for payments petitioner
made to creditors of a bankrupt corporation in an effort to
strengthen his own standing and credit.
FACTS: After the corporation for which he was formerly secretary was adjudged bankrupt, petitioner sought to reestablish his relations with customers and to solidify his credit and standing by paying a portion of the corporation's discharged debts. Over five successive years, petitioner made substantial payments to creditors and deducted the payments from his income.
ANALYSIS:
The Supreme Court affirmed a ruling of respondent that these payments were not deductible from income as ordinary and necessary expenses, but rather, were in the nature of capital expenditures, an outlay for the development of reputation and good will. Although petitioner's payments were necessary because they were appropriate and helpful to the continuation of his business, his payments of another's debts with no legal obligation to do so were not ordinary because they were not the common and accepted means of heightening his reputation for generosity and opulence. Since petitioner failed to sustain his burden of overcoming the presumption of correctness of respondent's ruling, he was not entitled to the deduction.
CONCLUSION: The Supreme Court affirmed an action by respondent disallowing deductions in the computation of petitioner taxpayer's income.
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FACTS: After the corporation for which he was formerly secretary was adjudged bankrupt, petitioner sought to reestablish his relations with customers and to solidify his credit and standing by paying a portion of the corporation's discharged debts. Over five successive years, petitioner made substantial payments to creditors and deducted the payments from his income.
ANALYSIS:
The Supreme Court affirmed a ruling of respondent that these payments were not deductible from income as ordinary and necessary expenses, but rather, were in the nature of capital expenditures, an outlay for the development of reputation and good will. Although petitioner's payments were necessary because they were appropriate and helpful to the continuation of his business, his payments of another's debts with no legal obligation to do so were not ordinary because they were not the common and accepted means of heightening his reputation for generosity and opulence. Since petitioner failed to sustain his burden of overcoming the presumption of correctness of respondent's ruling, he was not entitled to the deduction.
CONCLUSION: The Supreme Court affirmed an action by respondent disallowing deductions in the computation of petitioner taxpayer's income.
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