The opinion
Murdock, J., dissenting: Many cases involving income and deductions of illegal businesses come before the Court, but this is the first one to my knowledge in which the Commissioner had disallowed a deduction for wages of regular employees claimed by an employer who is engaged in an illegal business. The Commissioner in many cases refuses to accept the net income shown on the books and records of an illegal business because the petitioner has destroyed the original records and the Commissioner has no way of verifying the accuracy and completeness of the books. The Commissioner here has disallowed the salaries of employees who made the original records which the Commissioner properly deems essential to a complete set of records and upon which he has relied in determining the total amounts bet. The Court is supporting him in this, and thus the expense of keeping the very records which are essential to a correct reflection of income is denied as an ordinary and necessary expense of the business.
These employees are engaged in the perpetration of the same crime through which the principal earns the income in question. Their wages, like rent, heat, light, telephone, and supplies, such as paper and pencils, are inherent expenses of the business, indispensable to the earning of the income in question. Kent and telephone expense would fall into the same category as these wages, if the landlord and the telephone company knew that gambling was conducted on the premises. To deny such deductions is to tax, to that extent, gross income. G. A. Comeaux, 10 T. C. 201, 207 , affd. 176 F. 2d 394 . Cf. Commissioner v. Heininger, 320 U. S. 467 . Wages of real employees are different from bribes in that the giving of a bribe is a separate offense from the conduct of the illegal business. G. A. Comeaux, supra.
The allowance for wages should be the same in every State, but here the deduction is being disallowed because of a specific statute of the State of Illinois.
I think the deduction should be allowed.
HaeeoN, TietjeNs, and Atkins, JJ., agree with this dissent.