Welch v. Helvering
Encyclopedia
Welch v. Helvering, 290 U.S. 111
(1933), was decision by the United States Supreme Court on the difference between business and personal expenses, and the difference between ordinary business deductions and capital expenses. It is one of the most important income tax law
cases.
Thomas Welch and his father owned a grain brokerage business in Minnesota, that went bankrupt in 1922. Welch later re-opened a business, but first had to repay his discharged debts. He then tried to deduct the repayments, but the Commissioner ruled that these payments were not deductible from income as ordinary and necessary expenses.
Justice Benjamin N. Cardozo
, delivering the Court's opinion, held that the expenses were too personal, that they were too bizarre to be ordinary, and that they 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."
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1933), was decision by the United States Supreme Court on the difference between business and personal expenses, and the difference between ordinary business deductions and capital expenses. It is one of the most important income tax law
Income tax in the United States
In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...
cases.
Thomas Welch and his father owned a grain brokerage business in Minnesota, that went bankrupt in 1922. Welch later re-opened a business, but first had to repay his discharged debts. He then tried to deduct the repayments, but the Commissioner ruled that these payments were not deductible from income as ordinary and necessary expenses.
Justice Benjamin N. Cardozo
Benjamin N. Cardozo
Benjamin Nathan Cardozo was a well-known American lawyer and associate Supreme Court Justice. Cardozo is remembered for his significant influence on the development of American common law in the 20th century, in addition to his modesty, philosophy, and vivid prose style...
, delivering the Court's opinion, held that the expenses were too personal, that they were too bizarre to be ordinary, and that they were capital. He did not consider them “ordinary and necessary business expenses”, and therefore not deductible under Section 162 of the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
.
This case is frequently cited for its dictum
Dictum
In United States legal terminology, a dictum is a statement of opinion or belief considered authoritative though not binding, because of the authority of the person making it....
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."
See also
- Tax Deductions in the United States
- List of United States Supreme Court cases, volume 290