The opinion
AiujNdell, J., dissenting: I am disturbed by the holding in the majority opinion that' a commission (characterized as a “kick-back”) paid by an optician to a doctor for sending him customers may not be deducted as an ordinary and necessary expense on the ground that this practice of the doctors is unethical and contrary to public policy. The question seems to be one of first impression.
The revenue statutes are designed to raise money to support the Government and, as stated by Judge Sibley in Alexandria Gravel Co. v. Commissioner, 95 Fed. (2d) 615, they are none too squeamish about how the income to be taxed was realized. The profits of illegal businesses are taxed the same as the profits of legitimate businesses and, as the tax is based on net income rather than gross income, the expenses incurred in carrying on of the illegal business have been generally allowed, as the purpose of the tax laws is not to penalize a business because it is one on which the law frowns. Commissioner v. Heininger, 320 U. S. 467 . It is true that courts have balked at permitting the deduction of sums paid as bribes and sums paid to perform an act specifically forbidden by law, but those holdings were based on the finding that such expenditures could not be characterized as “ordinary” or “necessary” in the carrying on of a trade or business.
Our income tax system is what is commonly called a selfassessing one and the deductions to be allowed are the ones spelled out by Congress. Expenditures incident to the earning of the income are, generally speaking, deductible in determining the income to be taxed. As I understand the holding of the majority, it is that what would be normally regarded as an ordinary and necessary expense may not be deducted in this case because the arrangements incident to the payment are said to be contrary to public policy.
There are many definitions of what is public policy, and Words and Phrases, vol. 35, pp. 274 — 291, contains hundreds of excerpts from court decisions defining the term and some of the definitions as quoted in the majority opinion are to be found in this work. In Vidal v. Girard's Executors, 2 How. 126, 197 , where certain conditions which had been attached by a testator to a devise for the establishment of a college were challenged as being violative of the public policy of Pennsylvania, the Supreme Court held:
In considering this objection, the court are [sic] not at liberty to travel out of the record * * * to consider whether the scheme of education by him prescribed, is such as we ourselves should approve, or as is best adapted to accomplish the great aims and ends of education. Nor are we at liberty to look at general considerations of the supposed public interests and policy of Pennsylvania upon this subject, beyond what its constitution and laws and judicial decisions make known to us. The question, what is the public policy of a state, and what is contrary to it, if inquired into beyond these limits, will be found to be one of great vagueness and uncertainty, and to involve discussions which scarcely come within the range of judicial duty and functions * * *. We disclaim any right to enter upon such examinations, beyond what the state constitutions, and laws, and decisions necessarily bring before us.
More recently, in Muschany v. United States, 324 U. S. 49, 66 , the Supreme Court has stated:
* * * Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. Vidal v. Philadelphia, 2 How. 127, 197-98 . As the term “public policy” is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy.
It would seem to me that the Tax Court should be reluctant to undertake the determination of the question of what is and what is not contrary to public policy, both for the United States and for each of the forty-eight States, where the act condemned as against public policy is not one shown to be in violation of any law of the land. What are deductible items should be known to a taxpayer with reasonable certainty under our income tax system. This Court in the past has taken the position that it does not possess the right to condemn undesirable trade practices as being against public policy where it could find no expression of statutory law or other authority to that effect. See F. L. Bateman, 34 B. T. A. 351.
It is interesting to note that the Commissioner, in his regulations, does not point out that expenditures of this sort fall without the purview of the statute, and in his brief in this case he does not argue that the agreements between petitioner and the doctors were contrary to public policy, but, rather, that the payments to the doctors are not ordinary and necessary expenses in that they were voluntary and incident to an unethical practice.