Opposition — Schott v. United States

No. 77-906

In the Supreme Court of the United States

OcTOBER TERM, 1977

PATRICK M. SCHOTT, ET UX., PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

IN OPPOSITION

Wape H. McCres, Jr.,

Solicitor General,

Department of Justice,

Washington, D.C. 20530.

Inu the Supreme Court of the nited States

OCTOBER TERM, 1977

No. 77-906

PATRICK M. SCHOTT, ET UX., PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

IN OPPOSITION

The sole question presented in this federal income tax

case is whether the decision below correctly held that

petitioner! could not claim a deduction for his unreim-

bursed campaign expenses incurred in his successful bid

for election to a state court judgeship.

In 1972, petitioner, a practicing attorney, waged a

successful campaign for election to a state court judgeship

in Louisiana. During the campaign, petitioner incurred

various Campaign expenses that were not reimbursed (Pet.

App. A-5).

‘References to “petitioner” are to Patrick M. Schott. Joun G.

Schott is a party because she filed a joint return with her husband for

the year at issue.

(1)

2

On his 1972 tax return, petitioner claimed a deduction

for his unreimbursed campaign expenses. On audit, the

Commissioner of Internal Revenue disallowed this

deduction on the ground that campaign expenses were not

deductible as ordinary and necessary expenses incurred

either in carrying on a trade or business or in the

production of income. In this refund suit brought by

petitioner in the United States District Court for the

Eastern District of Louisiana, the district court upheld the

Commissioner's determination (Pet. App. A-2 to A-7).

The court of appeals affirmed per curiam (Pet. App. A-1).

|. Petitioner's claim for a deduction for campaign

expenses is foreclosed by this Court’s decision in

McDonald v. Commissioner, 323 U.S. 57. There, the

taxpayer accepted a temporary appointment to a state

court judgeship. Subsequently, he stood for election to the

judgeship to which he had been appointed. In order to

obtain the support of his political party, he was obligated

to pay an assessment to the party fund. After losing the

election, the taxpayer sought to deduct the assessment as

well as his other campaign expenses.

The Court held that the campaign expenses and

assessment were not deductible under the predecessors of

Sections 162 (trade or business expenses) and 212

(expenses incurred for the production or collection of

income) (26 U.S.C.). The plurality opinion stated that the

disallowance of such a deduction had been consistently

reflected by legislative history, court decisions,’ Treasury

Regulations,’ and Treasury administrative practice.

?The lower courts have consistently continued to deny deductions

for personal campaign expenses. E.g., Nichols v. Commissioner, 511

F. 2d 618 (C.A. 5) (en banc), certiorari denied, 423 U.S. 912; Levy v.

United States, 535 F. 2d 47 (Ct. Cl.); Hakim v. Commissioner, 512 F.

2d 1379 (C.A. 6), certiorari denied, 429 U.S. 930; Mays v. Bowers,

201 F. 2d 401 (C.A. 4), certiorari denied, 345 U.S. 969.

‘This rule of nondeductibility is embodied in Treasury Regulations,

Sections 1.162-20(c) and 1.212-1(f) (26 C.F.R.).

_-?

a

Cua ¢

3

Contrary to petitioner's argument (Pet. 5-7), the

considerations set forth in McDonald for disallowing a

deduction for election campaign expenses are fully

applicable to this case. Both the expenses here and in

McDonald were incurred in seeking election to public

office.* As the plurality opinion noted in McDonald, the

relationship between expenses incurred in securing

election to public offic. and a tax deduction involves

issues of far reaching importance which Congress should

address (see 323 U.S. at 63-65). However, Congress has

never enacted any provision allowing the deduction

petitioner seeks. Instead, it has generally denied deduc-

tions for political contributions.5 There is accordingly no

statutory basis for petitioner’s claimed deduction.

2. Contrary to petitioner’s further assertion (Pet. 8),

McDonald and its progeny in the lower courts do not

conflict with the Tax Court’s decisions in Primuth v.

‘Petitioner alternatively argues (Pet. 9-10) that his campaign

expenses are deductible as advertising expenses. But there is nothing

in the record that suggests that there was any connection between the

expenses and his law practice. The origin of these expenses was

petitioner’s desire to be elected to public office, not the desire for

increased legal business. The expenses are therefore not deductible as

advertising expenses. Maness v. Commissioner, 54 T.C. 1602,

1604-1607.

‘See, e.g., Section 162(e)2) (nondeductibility as business expenses

of amounts contributed to political campaign or efforts to influence

legislation); Section 170(c2) (denying charitable contribution

deductions with respect to gifts to political campaigns or

organizations engaged in influencing legislation); Section 271

(providing that a taxpayer may not deduct as bad debts amounts

owed to him by a political party); Section 276 (disallowing deductions

for certain indirect contributions to political parties); Section

501(c\3) (denying tax-exempt treatment to any organization which

devoted a substantial part of its activities to influencing legislation or

participating in political campaigns); Section 4945(a), (d){(1) and (e)

(imposing a tax on the expenditures of a private foundation made for

the purposes of influencing legislation) (26 U.S.C.).

4

Commissioner, 54 T.C. 374; Kenfield v. Commissioner, 54

T.C. 1197; and Cremona v. Commissioner, 58 T.C. 219,

upholding claimed deductions for employment agency

fees. Apart from the fact that this Court does not resolve

conflicts between the Tax Court and the courts of

appeals, the Tax Court has stated that the policy

considerations present in the political sphere distinguish

campaign expenses from expenses incurred in a search for

employment. Martino v. Commissioner, 62 T.C. 840, 844-

845. See also Nichols v. Commissioner, 511 F. 2d 618, 620

(C.A. 5) (en banc), certiorari denied, 423 U.S. 912.

It is therefore respectfully submitted that the petition

for a writ of certiorari should be denied.

Wave H. McCree, Jr.,

Solicitor General.

FEBRUARY 1978.

DOj-1978-02