Sam P. Wallingford Grain Corp. v. Commissioner of Internal Revenue

In Welch v. Helvering, 290 U.S. 111, 54 S. Ct. 8, 9, 78 L. Ed. 212, it appeared that the taxpayer had been an active officer of a corporation which had been adjudged a bankrupt. When the taxpayer thereafter started up in the same business on his own account, he found it necessary to pay up the debts of the bankrupt corporation in order to reestablish his relationship with his customers and to solidify his own credit and standing. This he did, and then deducted such payments from his own income as "ordinary and necessary expenses paid or incurred * * * in carrying on any trade or business." Revenue Act 1924, c. 234, § 214(a)(1), 26 USCA § 955(a)(1). The Commissioner disallowed the deduction. The Board of Tax Appeals, the Court of Appeals, and the Supreme Court of the United States affirmed the Commissioner. In the opinion in the Supreme Court, it was assumed that the expense was necessary; it was held it must be more, it must be an ordinary expense. On that point the court, speaking through Mr. Justice Cardozo, said: