denying a loss deduction under section 165 based on public policy grounds where a taxpayer spent money on a sham counterfeiting scheme
How later courts described this case
- denying a loss deduction under section 165 based on public policy grounds where a taxpayer spent money on a sham counterfeiting scheme
- theft of cash in a scheme to counterfeit U.S. currency treated as a loss item
- Tannenwald , J ., concurring, and Sterrett , J ., dissenting
Written by the judges who cited it.
The opinion
TaNNENWAld, J., concurring: I wholeheartedly agree with the result reached by the majority. It is inconceivable to me that Congress intended that a taxpayer should be allowed to deduct a payment voluntarily made, which is part and parcel of the very act believed by him to constitute a crime and involving a type of conduct proscribed by sharply defined “national or state policies evidenced by some governmental declaration” (see Commissioner v. Tellier, 383 U.S. 687, 694 (1966)). To put a more extreme case, could there be any doubt that no deduction would be allowable where the taxpayer, desiring to have a particular person murdered, pays a sum of money for that purpose to a thug who pockets the cash without intending to carry out the deed ?
There is a sharp distinction between such payments, so interwoven with the purported criminal act, and payments of an inherently innocent character, like rent or utility charges, which Commissioner v. Sullivan, 356 U.S. 27 (1958), held might appropriately be taken into account in determining the taxable income of an illegal enterprise because they bore only “a remote relation to an illegal act.” See 356 U.S. at 29 . The fact that the particular mechanism chosen in this case would not have resulted in the successful consummation of the contemplated crime seems to me to be irrelevant — petitioner was unaware of such incapability of the mechanism.
Clearly, Tellier did not preclude the application of public policy considerations under any and all circumstances. Similarly, in enacting the amendments to section 162, dealing with the deduction of various items involving such considerations, Congress left the door open by recognizing that “public policy, in other circumstances, generally is not sufficiently clearly defined to justify the disallowance of deductions.” See S. Kept. No. 91-552, 91st Cong., 4st Sess., p. 274 (1969) (emphasis added). The reference to legislative retention of control over deductions in the Senate committee report accompanying the Revenue Act of 1971 was limited to situations involving bribes and kickbacks. See S. Kept. No. 92-437, 92d Cong., 1st Sess., p. 72 (1971).
I would apply the “narrow delineation of the standard of non-deductibility” set forth in Tellier (see James B. Carey, 56 T.C. 477 (1971), affirmed per curiam 460 F. 2d 1259 (C.A. 4, 1972)) in terms of the seriousness of the purported crime involved. That counterfeiting is a serious crime within the contemplation of declared national policy is beyond question. United States Constitution, art. 1, sec. 8, cl. 6 ( 18 U.S.C. sec. 471 (1970)).
The obvious reply to the contention that my approach may involve “the task of grading criminal activity” is that, to the extent that this may be the result, the courts will simply be dealing with another instance of line-drawing which is part of the daily grist of judicial life. See Harrison v. Schaffner, 312 U.S. 579, 583 (1941).
DawsoN and Raum, JJ., agree with this concurring opinion.