an expense is incurred "in connection with" the conduct of a trade or business if it is associated with or logically related
How later courts described this case
- an expense is incurred "in connection with" the conduct of a trade or business if it is associated with or logically related
- revenue estimates have little relevance in interpreting a statute
- “‘In connection with’ means associated with, or related.”
Written by the judges who cited it.
The opinion
Beghe, J., dissenting: The easy path would have been to go along with the majority’s conclusion in this case. That could have been justified by the considerations that actuated Judge Reinhardt’s special concurrence in In re Kroy (Europe) Ltd., 27 F.3d 367, 370 (9th Cir. 1994), which, of course, reached the contrary result:
This is a close question. I cannot say that the conclusion reached in Judge McLaughlin’s [Ruwe’s] opinion is incorrect. If Congress intended a different result, it will now have the opportunity to make its intentions clear.
In the meantime, courts must decide the cases that have already happened. Because I don’t believe that Congress intended the result reached by the majority, I respectfully dissent. I will leave to others the task of rehashing the multiplicity of arguments advanced by the “numerous commentators”, see majority op. note 11, who almost uniformly disagree with the result we reach today. 1 1 write separately only to indicate another path to the contrary result. 2
The result in this case cannot properly be determined merely by interpreting broadly the phrase “in connection with”. There can be no quarrel with the majority opinion that the phrase is to be interpreted broadly, and that, if it is so interpreted, the expenses of issuing debt securities and obtaining loans, which were necessary to effectuate the redemption, were, at one remove in a chain of causation, “in connection with” the redemption. But the question that the majority and other courts should face up to more forthrightly is whether that connection is not displaced or trumped by the direct cause and effect relationships between the expenses at issue and the debt securities and loans that financed the redemption. Because, under well-settled principles of tax law, those expenses must be amortized over the periods outstanding of the debt securities and loans to which they relate — and the interest on which is deductible under section 162(k)(2)(A)(i) — I would conclude that the amortization deductions for those expenses are not disallowed by section 162(k)(l).
Halpern, J., agrees with this dissent. I’m well aware that the result argued for by these commentators coincides for the most part with the financial interests of their clients and the corporations and firms they would welcome as clients.
My only cavil with the persuasive majority opinion is its initial recourse to the dictionary (majority op. p. 352), which partially obscures the process of judicial reasoning by failing to tell us what informs the choice to do so. See Comment, “Looking It Up: Dictionaries and Statutory Interpretation”, 107 Harv. L. Rev. 1437 , 1453 (1994). The majority opinion states that “Events or elements are ‘connected’ when they are “logically related’”, citing Webster’s Third New International Dictionary 480 (1986) (majority op. p. 352). It bears noting that the logical relationship referred to by the majority is not the logic of the laws of thought and correct syllogistic reasoning, but the “logic of events” that has to do with cause and effect relationships and necessary connections or outcomes. See Webster’s New Universal Unabridged Dictionary 1064 (2d ed. 1979).