McDonald v. Commissioner

323 U.S. 57, 65 S. Ct. 96, 89 L. Ed. 68, 1944 U.S. LEXIS 1255

Opinions

Mr. Justice Frankfurter

announced the conclusion and judgment of the Court, and an opinion in which the

Chief Justice, Mr. Justice Roberts and Mr. Justice Jackson concur.

This is a controversy concerning a deficiency in petitioner’s income tax for 1939.

In December 1938, the Governor of Pennsylvania appointed petitioner to serve an unexpired term as Judge of the Court of Common Pleas of Luzerne County. Under Pennsylvania law such an interim judgeship is filled for a full term at the next election. McDonald accepted this temporary appointment with the understanding that he would contest both the primary and general elections. To obtain the support of his party organization he was obliged to pay to the party fund an “assessment” made by the party’s executive committee against all of the party’s candidates. The amounts of such “assessments” were fixed on the basis of the total prospective salaries to be received from the various offices. The salary of a common pleas judge was $12,000 a year for a term of ten years, and the “assessment” against petitioner was fixed at $8,000. The proceeds from these “assessments” went to the general campaign fund in the service of the party’s entire ticket. In addition to this political levy, McDonald also spent $5,017.27 for customary campaign expenses — advertising, printing, travelling, etc. The sum of these outlays, $13,017.27, McDonald deducted as a “reelection expense.” The Commissioner of Internal Revenue disallowed the item and notified him of a deficiency of $2,506.77.

In appropriate proceedings before the Tax Court of the United States that Court sustained the Commissioner, 1 T. C. 738, and its decision was affirmed by the Circuit Court of Appeals for the Third Circuit. 139 F. 2d 400. We brought the case here, 321 U. S. 762, to give a definitive judicial answer to an important problem in the administration of the federal income tax.

What class of outlays may, in relation to the federal income tax, be deducted from gross income and in what amount are matters solely for Congress. Our only problem is to ascertain what provisions Congress has made regarding such expenditures as those for which the petitioner claims the right of deduction. The case is not embarrassed by any entanglement with corrupt practices legislation either state or federal.

The materials from which must be distilled the will of Congress are the following provisions of the Internal Revenue Code: § 23 (a) (1) (A), 56 Stat. 798, 819, 26 U. S. C. § 23 (a) (1) (A) (Supp. 1943), in connection with § 24 (a) (1), 26 U. S. C. § 24 (a) (1), and § 48 (d), 26 U. S. C. § 48 (d); § 23 (e) (2), 26 U. S. C. § 23 (e) (2); § 23 (a) (2) as amended by § 121 of the Revenue Act of 1942, 56 Stat. 798, 819.

“All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business” are allowed by § 23 (a) (1) (A) as deductions in computing net income. According to tax law terminology (§48 (d) of the Internal Revenue Code) the performance by petitioner of his judicial office constituted carrying on a “trade or business” within the terms of § 23 of the Internal Revenue Code. He was therefore entitled to deduct from his gross income all the “ordinary and necessary expenses” paid during 1939 in carrying on that “trade or business.” He could, that is, deduct all expenses that related to the discharge of his functions as a judge. But his campaign contributions were not expenses incurred in being a judge but in trying to be a judge for the next ten years. That is as true of the money he spent more immediately for his own reelection as it is of the “assessment” he paid into the party coffers for the success of his party’s ticket. The incongruity of allowing such contributions as expenses incidental to the means of earning income as a judge is underlined by the insistence that payment of the “assessment” levied by the party as a prerequisite to being allowed to be a candidate is deductible as a “business” expense. If such “assessments” for future acquisition of a profitable office are part of the expenses in performing the functions of that office for the taxable year, then why should not the same deduction be allowed for “assessment” against officeholders not candidates for immediate reappointment or reelection but who pay such “assessments” out of party allegiance mixed or unmixed by a lively sense of future favors?

In order to disallow them we are not called upon to find that petitioner’s outlays come within the prohibition of § 24 of the Internal Revenue Code in that they constituted “Personal . . . expenses.” “Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed.” New Colonial Ice Co. v. Helvering, 292 U. S. 435, 440. For these campaign expenses to be deductible, it must be found that they can conveniently come within § 23 (a) (1) (A). To put it mildly, that section is not a clear provision for such an allowance. To determine allowable deductions by the different internal party arrangements for bearing the cost of political campaigns in the forty-eight states would disregard the explicit restrictions of § 23 confining deductible expenses solely to outlays in the efforts or services-— here the business of judging — from which the income flows. Compare Welch v. Helvering, 290 U. S. 111, 115-116.

Petitioner next insists that inasmuch as he was defeated for reelection his campaign expenses constitute a loss incurred in a “transaction entered into for profit” and as such a deductible allowance by virtue of § 23 (e) (2).¹ Such an argument does not deserve more than short shrift. It suffices to say that petitioner’s money was not spent to buy the election but to buy the opportunity to persuade the electors. His campaign contribution was not an insurance of victory frustrated by “an act of God” but the price paid for an active share in the hazards of popular elections. To argue that the loss of the election proves that the expense incurred in such election is a deductible “loss” under § 23 (e) (2) is to play with words.

Finally, reliance is placed on an amendment to the Internal Revenue Code introduced by § 121 of the Revenue Act of 1942, 56 Stat. 798, 819.² This amendment was proposed by the Treasury (1 Hearings before Committee on Ways and Means, Revenue Revision, 1942, 77th Cong., 2d Sess., p. 88) to afford relief for a specifically defined inequitable situation which had become manifest by the decision of the Court in Higgins v. Commissioner, 312 U. S. 212. In that case this Court held that by previous enactments Congress had made no provision for al lowable deductions from profitable transactions not covered by the statutory concept of “business” income. But of course earnings from “the performance of the functions of a public office” had specifically been so covered. § 48 (d) ,³ Congress adopted the Treasury proposal for the restricted purpose which originated it. And so here the difficulty is not that petitioner’s expenditures related to “non-business” income, and thus were excluded from the legislative scheme before the 1942 Amendment, but that they were not incurred in “carrying on” his “business” of judging. The amendment of 1942 merely enlarged the category of incomes with reference to which expenses were deductible. It did not enlarge the range of allowable deductions⁴ of “business” expenses. In short, the act of 1942 in no wise affected the disallowance of campaign expenses as consistently reflected by legislative history, court decision, Treasury practice and Treasury regulations.⁵ Nothing whatever in the circumstances attending the adoption of § 121 of the Revenue Act of 1942 warrants the suggestion that Congress unwittingly initiated a radical change of policy regarding campaign expenditures. Every relevant item of evidence bearing upon the history of this amendment precludes the inference that the Treasury without intent and the Congress without appreciation opened wide the door for the allowance of campaign expenditures as deductible expenses. It surely is not fair to attribute to Congress the reversal of its policy and the enactment of a far-reaching new policy in the absence of any evidence, however tenuous or speculative, that Congress was legislating on the subject.

It is not for this Court to initiate policies as to the deduction of campaign expenses. It is for Congress to determine the relation of campaign expenditures to tax deductions by candidates for public office, under such circumstances and within such limits as commend themselves to its judgment. But we certainly cannot draw intimations of such a policy from legislation by Congress increasingly restrictive against campaign contributions and political activities by government officials. The relation between money and politics generally — and more particularly the cost of campaigns and contributions by prospective officeholders, especially judges — involves issues of far-reaching importance to a democracy and is beset with legislative difficulties that even judges can appreciate. But these difficulties can neither be met nor avoided by spurious interpretation of tax provisions dealing with allowable deductions.

To find sanction in existing tax legislation for deduction of petitioner’s campaign expenditures would necessarily require allowance of deduction for campaign expenditures by all candidates, whether incumbents seeking reelection or new contenders. To draw a distinction between outlays for reelection and those for election- — -to allow the former and disallow the latter — is unsupportable in reason. It is even more unsupportable in public policy to derive from what Congress has thus far enacted a handicap against candidates challenging existing officeholders. And so we cannot recognize petitioner’s claim on the score that he was a candidate for reelection.⁶

Even if these conclusions, in the setting of federal income tax legislation, derived less easily than they do from the statutory provisions under scrutiny, we should not be inclined to displace the views of the Tax Court with our own.⁷ Of course the Tax Court cannot define the limits of its own authority. And in cases like Commissioner v. Heininger, 320 U. S. 467, where the Tax Court mistakenly felt itself bound by superior judicial authority, we must give corrective relief. But, as a system, tax legislation is not to be treated as though it were loose talk or presented isolated abstract questions of law casting upon the federal courts the task of independent construction. Tax language normally has an enclosed meaning or has legitimately acquired such by the authority of those specially skilled in its application. To speak of tax determinations made in the system of review specially designed for federal tax cases as technical is not to imply opprobrium.

Having regard to the controversies which peculiarly call for this Court’s adjudication and to the demands for their adequate disposition, as well as to the exigencies of litigation generally, relatively few appeals from Tax Court decisions can in any event come here. That court of necessity must be the main agency for nation-wide supervision of tax administration. Whatever the statutory or practical limitations upon the exercise of its authority, Congress has plainly designed that tribunal to serve, as it were, as the exchequer court of the country. Due regard for these considerations is the underlying rationale of Dobson v. Commissioner, 320 U. S. 489. We are therefore relieved from discussing the numerous cases in which the Tax Court or its predecessor, the Board of Tax Appeals, allowed or disallowed deductions and their bearing on the situation before us. To do so involves detailed analysis of the special circumstances of various “businesses” and expenses incident to their “carrying on.” We shall not enter this quagmire of particularities.

Affirmed.

Mr. Justice Rutledge concurs in the result.

1 “Losses by individuals. — In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise ... if incurred in any transaction entered into for profit, though not connected with the trade or business.”

2 “Non-trade or non-business expenses. — 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.”

3 ‘‘Trade or business. — The term trade or business’ includes the performance of the functions of a public office.” This amendment, added by the Revenue Act of 1934, 48 Stat. 680, 696, was merely “declaratory of existing law.” S. Rep. No. 558, 73d Cong., 2d Sess., p. 29. It had “nothing to do” with campaign expenses, 1 Hearings before Committee on Finance on H. R. 8735, 73d Cong., 2d Sess. (March 6, 1934), p. 29, which continued to be outside deductions allowed by § 23 (a) (1).

4 “A deduction under this section is subject, except for the requirement of being incurred in connection with a trade or business, to all the restrictions and limitations that apply in the case of the deduction under section 23 (a) (1) (A) of an expense paid or incurred in carrying on any trade or business.” H. Rep. No. 2333, 77th Cong., 2d Sess., p. 75; S. Rep. No. 1631, 77th Cong., 2d Sess., p. 88.

5 Reed v. Commissioner, 13 B. T. A. 513, reversed on another ground, 34 F. 2d 263, reversed sub nom. Lucas v. Reed, 281 U. S. 699; Treas. Reg. 103, § 19.23 (a)-15; Treas. Reg. 103, §23 (o)-1; O. D. 864, 4 Cum. Bull. 211 (1921).

6 In the interest of accuracy it is to be pointed out that petitioner was not a candidate for reelection; he was a candidate for election for the first time.

7 That the Tax Court may, as is sometimes true even of other courts, indulge in needless and erroneous observations is beside the point. See Helvering v. Gowran, 302 U. S. 238, 245-246.