Welch v. Helvering
   HOME

TheInfoList



OR:

''Welch v. Helvering'', 290 U.S. 111 (1933), was a decision by the
United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
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.


Background

Thomas Welch and his father owned a grain brokerage business in Minnesota, which went bankrupt in 1922. Welch later reopened a business. He chose to repay his discharged debts. He then tried to deduct the repayments as business expenses, but the Commissioner ruled that these payments were not deductible from income as ordinary and necessary expenses in the course of business.


Opinion of the Court

Benjamin N. Cardozo Benjamin Nathan Cardozo (May 24, 1870 – July 9, 1938) was an American lawyer and jurist who served on the New York Court of Appeals from 1914 to 1932 and as an Associate Justice of the Supreme Court of the United States from 1932 until his deat ...
, 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 In general usage, a dictum ( in Latin; plural dicta) is an authoritative or dogmatic statement. In some contexts, such as legal writing and church cantata librettos, ''dictum'' can have a specific meaning. Legal writing In United States legal ter ...
describing the meaning of the term "necessary" in Section 162 as requiring that expenses merely be "appropriate and helpful nthe development of the axpayer'sbusiness." 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.


See also

* Tax Deductions in the United States * List of United States Supreme Court cases, volume 290


Further reading

*


External links

* United States Supreme Court cases United States Supreme Court cases of the Hughes Court United States taxation and revenue case law 1933 in United States case law {{Tax-stub