Greenberg v. Commissioner

Dawson, /., dissenting: Under existing Treasury regulations the ascertainment of primary purpose is, to a great extent, dependent upon the Court’s subjective impression of the petitioner and his intent. Here, as the trial judge who heard the testimony, Judge Fay concluded that the petitioner undertook analytic training at the Boston Psychoanalytic Society and Institute primarily for the purpose of maintaining and improving his skills as a practitioner, teacher, and researcher in the field of psychiatry. I believe we should accept Judge Fay’s factual conclusions, recognizing of course that it is the “primary purpose” test itself which sets the fact finder “to sail on an illimitable ocean of individual beliefs and experiences.” Cf. Commissioner v. Duberstein, 363 U.S. 278, 297 .

Section 162(a), 1 I.R..C. 1954 (which provides the only statutory authority for allowing a deduction for educational expenses), has been applied in educational expense cases by this Court in such a way that it has produced a hodgepodge of seemingly irreconcilable opinions. 2

If expenses are “ordinary and necessary” within the meaning of section 162 and proximately related, to a taxpayer’s work, then they are deductible. Educational expenses are not special items requiring special rules. In my opinion they should be treated like any other basic expense item and should be judged by the same standards. “Necessary” means “appropriate and helpful to the taxpayer’s business.” Blackmer v. Commissioner, 70 F. 2d 255 (C.A. 2, 1934). And “ordinary” means the common experience of such expenses in the taxpayer’s particular business. Deputy v. du Pont, 308 U.S. 488, 495 ; and Welch v. Helvering, 290 U.S. 111, 113-114 . Or, in other words, “normal, usual or customary.” Since other businesses deduct the expenses of carrying on tlieir operations, should professional people such, as doctors, lawyers, accountants, engineers, and teachers be denied their “ordinary and necessary” business expenses incurred in maintaining and improving their skills? If the majority of this Court thinks so, it seems to me that they are swimming against the tide of educational, scientific, and medical advancement in America today. 3

There is no doubt that Congress has supported a liberal interpretation of what constitutes deductible educational expenses. See S. Rapt. No. 1983, 85th Cong., 2d Sess., p. 110 (1958). 4 When the regulations, including sec. 1.162-5, were promulgated in 1958, they were made to apply retroactively to all 1954 Code years. This resulted from pressure exerted on Congress for. legislative action in this area. At the time of their promulgation, a bill, extremely liberal in nature, was pending before Congress. 5 After the regulations were issued and hailed as a “liberalization” of the policy governing education expenses, the sponsor of the pending legislation stated that they obviated the necessity of enacting his bill. However, the genuine “liberalization” which the taxpayers expected from an interpretation of the regulations was not forthcoming. Instead, the rather strict and narrow construction placed on the regulations by the Commissioner and this Court in many instances has caused education expense deductions to become one of the most frequently litigated issues in the Federal income tax field.

Our first opinion following the issuance of the regulations, Jolm S. Watson, was a good beginning, but its effect was short-lived because our majority opinion in Arnold Namrow returned us to what I regard as a narrow, unrealistic, and hypertechnical interpretation of the regulations. I disagree with the majority opinion in Namrow. I think it was incorrectly decided, just as I think the majority is wrong in following it here. Since I think dissenting views 6 are often helpful, I feel compelled to comment on the Namrow opinion. The ma-j ority in Ncmvrow, did not concern itself with the alleged purpose of the two psychiatrists to improve their skills. Having decided that psychoanalysis was a specialty, they concluded that the expenses could not be deducted unless the psychiatrists were already psychoanalysts before taking the training. Thus the maj ority substituted result for primary purpose. Moreover, I think an erroneous conclusion was reached that psychoanalysis is a specialty. Even the Court of Appeals casts doubt on this conclusion. See Namrow v. Commissioner, 288 F. 2d at 652, where the Court of Appeals said: “The basic question of fact, whether psychoanalysis requires the acquisition of a new skill or the improvement of one already possessed, still remains to be answered.” Psychiatry, as I view it, is that branch of medicine which deals with the science and practice of treating mental, emotional, and behavioral disorders while psychoanalysis is merely an area of psychotherapeutic practice or one of the methods used by a psychiatrist. Frankly, I am unable to reconcile the opinion in Namrow with that of Watson or Welsh v. United States.

Whenever a bona fide business purpose exists, that fact should tend, in my judgment, to prove affirmatively that the education expense is “ordinary and necessary” to the taxpayer’s trade or business.

It is unfortunate that this Court has too often followed a very strict line with respect to educational expenses, only to be reversed on appeal. See Devereaux v. Commissioner, 292 F. 2d 637 (C.A. 3, 1961); Brooks v. Commissioner, 274 F. 2d 96 (C.A. 9, 1959); Marlor v. Commissioner, 251 F. 2d 615 (C.A. 2, 1953); and Hill v. Commissioner, 181 F. 2d 906 (C.A. 4, 1950). Perhaps the time has come for us to get in step with the intended spirit of the statute and the regulations. If we do not, surely we are inviting specific legislation. 7

I would decide this case for the petitioner.

FoeResteR, Fay, J Jagree with this dissent. SEC. 162. TRADE OR BUSINESS EXPENSES.

(a), In General. — There shall be aUowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including;—

Compare John S. Watson, 31 T.C. 1014 (an internist who was allowed to deduct expenses for training in psychiatry), and Cosimo A. Carlucci, 37 T.C. 695 (a research analyst who was allowed a deduction for expenses incurred in studying for a Ph. D. degree in industrial psychology), with Arnold Namrow, 33 T.C. 419 , affd. 288 F. 2d 648 (C.A. 4, 1961), certiorari denied 368 U.S. 914 (a practicing psychiatrist who was denied a deduction for expenses incurred in acquiring training in psychoanalysis), and Grant Gilmore, 38 T.C. 765 (also a practicing psychiatrist and professor who was denied a deduction for expenses incurred in studying psychoanalysis); compare also Welsh v. United States, 329 F. 2d. 145 (C.A. 6, 1964), with Condit v. Commissioner, 329 F. 2d 153 (C.A. 6, 1964); see and compare Harold H. Davis, 38 T.C. 175 ; Reuben B. Hoover, 35 T.C. 566 ; and Michaelson v. United States, 203 F. Supp. 830 , affd. 313 F. 2d 668 (C.A. 9, 1963).

See State of the Union Address (1965), 111 Cong. Rec. 26—29.

It is note-worthy that Congress also enacted sec. 96 of the Technical Amendments Act of 195S to extend the time for filing claims for refund so that taxpayers could benefit from the new Treasury regulations issued in 1958.

H.R. 4662, 85th Cong., 1st Sess. (1957).

As the late Chief Justice Hughes once said, a dissent is “an. appeal to the brooding spirit of the law, to the intelligence of a future day, when a later decision may possibly correct the error in which the dissenting judge believes the court to have been betrayed.”

As late as Jan. 23, 1966, an article appeared in the New York Times stating that Representative Jacobs of Indiana has “pledged his support to legislation, if it is needed, to assure teachers the same income tax deductions enjoyed by lawyers.” In a letter sent to the Commissioner, Jacobs “complained about the regulations.”