Friedman v. Delaney

171 F.2d 269 (1st Cir. 1948)

 

RULE:

Voluntary payments are not deductible as ordinary and necessary business expenses or losses.

FACTS:

Plaintiff attorney sought review of the judgment of the United States district court, which determined that, pursuant to 26 U.S.C.S. § 23(a)(1), (e)(1), defendant Commissioner of the Internal Revenue Service correctly disallowed the attorney's deduction for a business expense or loss incurred in business. The attorney deposited his own money for clients in a bankruptcy proceeding. When the clients refused to return the deposit, the attorney deducted a bad debt from his income. The commissioner disallowed the deduction. The attorney filed an action against the commissioner to recover the amount of the deduction. He argued that, pursuant to 26 U.S.C.S. § 23(a)(1), (e)(1), the deduction was allowable as a business expense or a loss incurred in business. The district court entered a judgment in favor of the commissioner. The attorney appealed. The court affirmed the action of the district court in giving judgment for the commissioner on the claim in the complaint for the item of $ 3,411 because 26 U.S.C.S. § 23(a)(1), (e)(1) did not apply to the attorney's voluntary payment. The court vacated and remanded the district court's judgment, however, finding that the attorney was entitled to judgment on his claim for an overpayment of his tax liability for the year 1941 in the amount of $ 235.19.

ISSUE:

Are voluntary payments allowed as an ordinary and necessary expense in carrying on business under Section 23(a)(1), or a loss incurred in business under Section 23(e)(1), of the Internal Revenue Code, 26 U.S.C.A. § 23(a)(1), (e)(1)?

ANSWER:

No

CONCLUSION:

The court affirmed the action of the district court that determined that the commissioner correctly disallowed the attorney's deduction for a business expense or loss incurred in business but vacated and remanded the district court's judgment with direction to enter judgment for the attorney for $ 235.19.

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