325 F.2d 191, 1963 U.S. App.63-2 U.S.
Tax Cas. (CCH) P9841; 12 A.F.T.R.2d (RIA) 6005
CASE SYNOPSIS: Appellant taxpayer
challenged the decision of a United States District Court, which held
that $ 17,000 contributed by appellant to a stockholder committee as
part of a proxy battle was not allowable as a deduction as an
ordinary and necessary non-business expense under 26 U.S.C.S. §
212.
FACTS: Appellant taxpayer challenged the district court's decision holding that $ 17,000 contributed by appellant to a stockholder committee as part of a proxy battle was not allowable as a deduction as an ordinary and necessary non-business expense under 26 U.S.C.S. § 212. The court reversed the district court with instructions to enter judgment in favor of appellant.
ANALYSIS:
The payments made by appellant were made with the anticipation that profit to appellant would result. Appellant may have taken a long chance, but he testified he knew the head of the stockholder committee well enough to know his ability and believed that there was reasonable likelihood of success. This testimony was undisputed. The activity resulting from the expenditures by appellant and his associates produced direct and tangible results in that three nominees of the stockholder were elected to the Board of Directors, the President, who had been severely criticized by the committee was caused to resign as was the Chairman of the Board, and many other actions which parallel those sought for by the committee were undertaken by the corporation. Profits were increased; dividends were increased; the stock enhanced in value.
CONCLUSION: The court reversed the district court's decision holding that appellant taxpayer's contribution to a stockholder committee as part of a proxy challenge was not deductible as an ordinary and necessary non-business expense. While appellant took a chance in making the contribution, he trusted the head of the committee and undertook the payment with the intention that it increase his investment, which it did.
FACTS: Appellant taxpayer challenged the district court's decision holding that $ 17,000 contributed by appellant to a stockholder committee as part of a proxy battle was not allowable as a deduction as an ordinary and necessary non-business expense under 26 U.S.C.S. § 212. The court reversed the district court with instructions to enter judgment in favor of appellant.
ANALYSIS:
The payments made by appellant were made with the anticipation that profit to appellant would result. Appellant may have taken a long chance, but he testified he knew the head of the stockholder committee well enough to know his ability and believed that there was reasonable likelihood of success. This testimony was undisputed. The activity resulting from the expenditures by appellant and his associates produced direct and tangible results in that three nominees of the stockholder were elected to the Board of Directors, the President, who had been severely criticized by the committee was caused to resign as was the Chairman of the Board, and many other actions which parallel those sought for by the committee were undertaken by the corporation. Profits were increased; dividends were increased; the stock enhanced in value.
CONCLUSION: The court reversed the district court's decision holding that appellant taxpayer's contribution to a stockholder committee as part of a proxy challenge was not deductible as an ordinary and necessary non-business expense. While appellant took a chance in making the contribution, he trusted the head of the committee and undertook the payment with the intention that it increase his investment, which it did.
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