Commissioner of Internal Rev. v. Textile Mills S. Corp.

already unexplained meetings referred casual and We have rejected respondents this was some of were evidence. None of who with others liability conspirators respond of such a character as to affect the convicted as ents that * * * supplier them, conspiracy. As to knew defendants. proffered sup material. and evidence was not one who without more furnishes plies There in guilty here no substantial evidence to an illicit is not distiller proffered conspiracy troduced or defend though that even his have sale simple gone beyond conspiracy ants have refusal object furthered the of á goods to sell which were which party their for reasons but distiller was a of which appeal supplier to them and sufficient as to one the had knowledge.” n having substantial reason. basis here, So supplier the refusal of the de- refusing While their acts in sell were to logical plaintiffs 'may fendants furthered charged, sell to similar, yet from the evidence a fair and inference object conspiracy pressure that as prove but it did not that brought them, they to bear on from busi suppliers conspiracy. knew of the necessity ness self-interest declined to correctly follows that the court di- plaintiffs. sell to fendants there were other reasonable ex As to some of these de rected a In supplier verdict favor of the appealed defendants. The judgment from planations, liability on their could is therefore reversed as to the retail knowing participation result from a dealers, remanded, and the cause is in the combination of retail dealers. In grant plaintiffs directions to a new trial States, supra. terstate Circuit v. United defendants, as to said sup- and as evidence, There is no direct or circum plier defendants judgment appealed stantial, showing knowledge. It was from is affirmed. enough to establish a cause of action against them to show there was a conspiracy among the lumber dealers to prevent plaintiffs securing supplies group defendants, sold in the absence of evidence that these defendants conspiracy. They knew there was such a plaintiffs they refused to sell feared such because OF INTERNAL COMMISSIONER REVE- displease would act MILLS NUE v. TEXTILE SECURI- customers, causing loss of their business. TIES CORPORATION. perhaps They suppliers knew that other No. 7056. presumably refusing for like rea Appeals, sons. Circuit Third Circuit In a recent United Fal States v. Dec. case. cone, al., 204, 205, L.Ed.-, et filed December the Su preme sufficiency Court considered the proof to convict one who sells materials knowledge intended production use or will be used in the spirits co-conspirators illicit distilled conspired with the distiller who with others spirits to distill in violation of the revenue It was laws. who with there contended one knowledge conspiracy spirits distill illicit sells materials to a conspirator, knowing will used distilling, guilty in conspiracy. is himself disposing of this conten tion, “In the court said: the case Al berico, Nole, case of Nicholas jury could have found that he knew

that one of their customers is an un who pur using convicted defendant was distilling. chased material illicit But it

could not be inferred from or from properties The had an sation therefor. estimated $60,000,000. aggregate value under terms of the contracts Under taxpayer employed, in which the success, taxpayer to re- event compensation per ten centum ceive properties re- the amount or value of the incident covered. The and costs by undertaking were borne to the GOODRICH, MARIS and Circuit taxpayer. obligations by created these The Judges, dissenting part. at Sixty- of retainer were to cease contracts close of the Second of the Session Ninth unless the adjourn- sought prior to had been enacted ment. pro- The vigorously worked legislation. employed cure the desired persons organizations, various cluding and in- Ivy organization, Lee Warren Martin, F. Reuben and F. Clark W. J. Mondell. Lee organization took publicity, charge arrangements made speeches kept for and with in touch press might to the end edi- Atty. Foster, Sp. Asst. Louise to the Gen. torial comment and news items. We think Gen., Morris, (James Atty. Asst. and W. that it assumed with fairness that Gen., Key, Atty. Sp. Asst. to the Sewall these news stories editorials were to brief), petitioner. proposed legislation. be Mr. to the favorable Martin, Spe- had been a former Kochersperger, Wash- who Edmund S. General, Attorney cial Assistant and Mr. respondent. ington, C.,D. Clark, who had been a former BIGGS, MARIS, CLARK, Before Department, pre- solicitor State GOODRICH, Judges. JONES, Circuit pared entitled, respectively, brochures Ex-Enemy Property, Interpre- "Status of BIGGS, Judge. Circuit tation of Treaties and Constitution” and Facts. Policy Enemy “American to Alien Relative Property”. comprehensive The last Corporation, Textile Mills Securities study history respondent taxpayer, of the the treatment of is a Delaware persons property in evidence, Mondell, corporation. charter is war. Mr. Its attorney stipulated who is an taxpayer’s that the a former member but it busi- Congress, by employed trading included tax- ness activities curities, investing se- proposals properties payer suggestions make acting promote foreign prin- to members of agent domestic speedy passage legislation. cipals. appears desired It also that all of the tax- appeared Mr. Mondell payer’s by also counsel had connections either officers Property hearings the Alien position before Cus- way ownership official or stock and certain tribunals manufacturing todian on behalf of in one or more textile cor- taxpayer’s clients. .the porations. These officers were in touch corporations German textile whose A bill for the settlement of war claims passed been seized properties Property had the Alien into was introduced during Representatives during Custodian World first House of the Sec provisions Trading Sixty-Ninth Congress, War under ond Session of Act, Enemy Ap- pass prior U.S.C.A. the Senate but did not ad beginning In 1924 the pendix. journment. was em- Before rep- Congress, German ployed these interests Session of Seventieth First taxpayer negotiated in the United States with new contracts with resent them the the substantially presenting their object of cause to Con- clients similar terms to except recovery ultimate the those which had terminated gress, claimants, anticipated provided legislative new en- contracts fact actments, properties compen- payment of the amount 3% pro- property Treasury Regulations the cle 262 of recovered 74 as or value of claimant and for an additional money mulgated act. Commis- under that 2% paid contrary. United property sioner Board over contended to year taxpayer1 within enactment in favor of the States one after the held short, petition the con legislation. of favorable bar at followed. tingent compensation reduced was The Law. recovery to a maximum of 10% recovery. contracts should be observed contract The new that a 5% provided taxpayer pay allegedly procuring very legisla for that the upon tion expenses by passed it in here was costs and performance incurred the under the involved twice by Appeals District obligations of its for the Martin, cases, viz., Lee, Clark of Messrs. Columbia in two Gesellschaft contracts. and Mondell continued their efforts Telegraphie Fur Brown, be Drahtlose B.M. H. v. 357, taxpayer. App.D.C 410, half of Seventieth F.2d and The Congress passed War Brown v. Fur Tele the “Settlement Gesellschaft Drahtlose 1928”, 254, H., graphie App.D.C. 94, Claims U.S. M. B. Act Stat. F. 227, 640, 9, 10, seq. Appendix, 20 et At 2d C.A. certiorari denied 307 U.S. §§ 1038, persons 1521, having this time services all the S.Ct. 83 L.Ed. except brought by attorney Mr. terminated. before it named Mondell a suit contingent Mr. Mondell continued render services to collect services a fee for year during part promoting the remainder of the rendered him in may and His be char legislation. thereafter. services the remedial first case purely legal acterized and consisted of cited the as court held the contract appearances arguments against before public policy, page the void as stating, “* * * F.2d, Property Alien Custodian and certain tri 412 of 78 there general bunals. condemnation of contracts legislation, procuring especially paid taxpayer The to the four men pro where the remedial named various for their sums services and against vides for the assertion claims reported year a net loss 1929 of government, is for contract $101,405.56 $134,797.93 net and a loss of contingent portion of a claim that year only pur- for the 1930. We are concerned given legal through status success in year taxpayer 1931 for securing legislation. contracts Such statutory authority suant to carried for- illegal tending corrupt im year ward to that its net loss 1929 and proper politi integrity our influence 1930, resulting in a net loss for 1931 of incumbent, cal there institutions. $7,615.15. The Commissioner refused to fore, upon pronounce courts void accept claimed, disallowing the losses ultimate such contract which the paid sums deductions credited corrupt tendency probable would be to Lee, Mondell, taxpayer the Martin Messrs. judgments legislators or mislead the per- Clark for services duties”, performance citing of their by them. The Commissioner formed now Co., 314, Marshall & O. R. 16 How. v. B. the amounts credited to concedes that Mondell Mr. Mar the decision in L.Ed. 953. While 1929were for services rendered Com shall v. Baltimore & Ohio Railroad “in connection claims of pany upon the conceal was principal, based petitioner’s after the enactment e lobby lobbyist, the are ment of the general th ‘Settlement of War Claims principles ”, compensation enunciated words 1928’ in other applicable case at bar for our services, legal procuring legis- not for principles opinion have not lation, properly those therefore deduc- decision in Steele taxpayer modified Drummond, tible. claimed that the sums 199, 53, U.S. 48 S.Ct. Lee, paid or credited to Messrs. Martin Su 238. In the case last cited the ordinary Clark were deductible as pointed Drummond paid preme Court out that incurred year employed or the during carrying taxable Steele on a rail provided by passage company or business Section to secure the trade road Revenue Act of 23(a) ordinance, himself in but was desired 791, 26 U.S.C.A. Int.Rev.Acts, very end an owner terested prohibited by were not page property. Arti- 1 38 B.T.A. 623. expended paid td taxpayer and the sums contracts between named, and now legisla- three individuals procure its “favor clients were to sought deducted, legisla- to be the execution distinguished tion” from “debt ex void contract. In our cited, page 229 of tion”. the cases See penditures ordinary. F.2d, Fur cannot deemed to be Brown note 7 to v. Gesellschaft They H., supra. are outside "the norm Telegraphie M. B. Drahtlose proper A Compensation legislation business construction procuring conduct. requires light 23(a) Section its words contingent In the basis. given “popular import”. considerations, or received both of these Deputy DuPont, See 308 U.S. services tracts were null and void. The performed agents 60 and Welch 84 L.Ed. L. corrup- Helvering, v. 78 suggestion 290 U.S. 54 S.Ct. were rendered without Moreover, and, re- not exception Ed. 212. so, even if this were tion with the hereinafter carrying out to, unethical, payment moneys was but for ferred were not 71, purpose contrary by no Sheckells, public policy is 202 U.S. stated in Hazelton v. 79, 939, ordinary. great weight of au 6 Ann. means 26 50 L.Ed. S.Ct. Burroughs thority supports 217, objection view. See Cas. them rests “The Cir., Commissioner, 2 Bldg. tendency, v. in what was done Material Co. not 178; Ry. v. particular Chicago, 47 F.2d R. I. & P. Co. as were case.” Such contracts 990, unduly Commissioner, Cir., possess tendency certio here 7 47 F.2d made 7, destroy 618, 76 denied, rari 284 52 legislative action and U.S. S.Ct. influence 527; Ry. v. integrity legislative L.Ed. Northern Co. institutions. Great Cir., Commissioner, 372, passing the 40 F.2d certiorari The function of denied, 855, 31, L.Ed. purely legislative. War U.S. Claims Act was 757, Sullivan, U.S. pro- enacting and United States v. a remedial statute 259, 1037, 607, 51 A.L.R. viding adjudication 47 S.Ct. L.Ed. a method for the claims tribunal. thus created before another 1020. properly A between distinction is made however, Quite apart foregoing, from contingent compensation for contracts for taxpayer’s perceive we how the cannot prosecution claim or contract a debt lobbying expenses circumstances under the may re- though even a debt or claim bar can be deemed to at quire appropriation, necessary expenses light legislation” “favor which creates a debt principles by the enunciated prohibited; or claim. The second is United in Kornhauser v. decision permissible provided first the interest States, 145, 219, 48 S.Ct. U.S. employed is disclosed and the methods are 505, Deputy DuPont, supra, 308 U. v. legitimate. page 60 S.Ct. 84 L.Ed. S. stipu by Appeals, nothing for contained As of Tax there is found Board any finding employed facts nor organization the Lee to lation performed by the “including services publicity, the Board handle matters moving or agents making arrangements speeches, or its were the for - passage of the tacting press, respect contributing cause of the of editorial how Obviously perceive comments, We cannot items.” War Claims Act. and news proximate can be established comments causation these news items and editorial lobbyists and the sponsor- appear between the efforts did not the stated ship legislation except where passage or its clients. desired corruption editori- reader such news comments and to actual the efforts extend Congress could including legislative body members of als members of a individual from not have emanated employed lobbyist known that for, methods if the inspired Such a source self-interest. permissible persuasion, leg be those of practices public opinion and poison tend to body exercises its freedom of still islative condemned. See Marshall independence action. As that mind and Co., supra; Tool B. & O. R. Providence ordinarily presumed to be the situation Norris, Company Wall. 17 L.Ed. showing contrary, of a absence 4879; 868; Contracts, p. interposed Williston lobbyist between the then The services ren- which he law desires enacted an in and the C.J.Contracts organization legislature. The dependent dered the Lee were in business of the passage legisla remains the legislature and of themselves otherwise than con- not public good. trary public policy. It follows that tion for the dividuals, applies payments sought corporations. be deducted here Never- theless, regulation proximately purpose could served tax conforms therefore, payer’s were, congressional un with the intent as restricted business necessary In a far as a of law. matter allowance of business deduction proximately ordinary truer sense to such resulted as are and neces- s.2 sary Where the business of United State law as well as in fact. This of neces reasonably the law the want from the thus determines inferred sity expenditures operation legislative history repeated enaat- business, appropriate particular statutory provision nor is neither ments Appeals congressional disapproval Tax rejec- allowable or the the Board of without tion regulation fact be courts find otherwise in that such purposes lately special congressional cause asserted or needs has more intent impliedly by express business. statu- confirmed tory enactment. spent conclusion, money purposes By lobbying (q) is not deductible as Sec. 23 the Revenue Act expense 1936, business U.S.C.A. Acts, Int.Rev.Acts, pages within the intent of the Revenue implication corporations permitted further confirmed the first time Treasury deduct, limits, Regula- prescribed derived from recurrent within donations right denying corporations part to tions to for charitable if “no substantial uses expenditures carry for deduct such as donations of the activities [the donee] Thus, 262 of purposes. ing attempting, Article propaganda, business on otherwise 74, money Regulations promulgated under Sec. etc.3 If legislation” to influence presently applicable ordinary Revenue (n) paid lobbyists of the and nec to were provides part, corporation, (1928), that “Sums of essary expense Act to a business purposes, money expended lobbying understanding for within the intent legislation, promotion by (q) the ex- Congress, defeat Sec. 23 then the denial including adver- ploitation propaganda, when used right contribution to deduct a advertising, purpose tising other and by than trade such inhibited donee .for expenses, end, for, are campaign contributions for a busi could serve no effective A gross income”. expense, expenditure from none not deductible would ness contained in T. provision 23(a) Sec. similar was less be deductible under Int.Rev.Acts, Decisions, 1936, Internal 2137, Act Treasury the p. 26 U.S.C.A. D. ap- 48, 57-58), (1915) (pp. Furthermore, later de the allowance of Revenue 827. 45, Regulations expenses under pearing as Article 562 for Sec. 23 duction business Act specified in the promulgated Revenue Act (a) under the of the appeared 23(a) of provision has in Sec. very The same words 1918. same used moneys change promulgated Consequently, spent regulations Act of 1928. without 1924, 1921, 1926, ordinary Acts of neces lobbying being the Revenue not under for sary 1934, 23(a) 1928, expenses See Arti- Sec. 1932, 1936 and 1938. business 69, 62, 1936, Regulations 23(q) Sec. 562 of Revenue Act of cle 77, implies, expenditures clearly 74 and Arti- are like Regulations 262 of Article necessary 86 and Article business (o)-2 Regulations cle 23 wise expenses Regulations 23(a) 94 and 101. under Sec. of the (q)-l of Act of expressly denying by Regula- 262 of In argued (q.) 1928. Sec. 23 be that Article any Treasury’s right Act to a corporate of 1936 excess tions 74 power taxpayer interpretive regula- lobby to contributions for deduct promulgate to it was the ing, evident intent of administration to the more efficient tions for by positive legislative that, particu- make sure direction Acts, this Revenue granted privilege corpora to interpret that the purports to which regulation, lar making deductible provision tions contributions statutory having to do with by charitable for uses laid made in- hold contributions charitable property deposited custodian or in it should be noted this connection Treasury, Trading shall he United States settled that Section * * 12, shall direct Act, Appendix Enemy 50 U.S.C.A. provides Repeated (q) “After the end of verbatim Sec. 23 any any enemy 289, 1938, or an the war claim of Revenue enemy money ally 460, Int.Rev.Acts, or other to 26 U.S.C.A. hy page property received and held alien by against tings by gain judges held has credit all circuit liability expenditures questioned tax been We Ninth Circuit.5 for not, therefore, been, important consider this and never had deductible deem question. begin with a expense. business We its consideration brief federal history reference to the stated, conclude For reasons we judicial system. paid by sums 24, 17S9, Judiciary September The Act of three not ordi individuals referred are fed- up categories Stat. three set in nary paid Court, the cir- courts, Supreme eral or 'busi carrying curred trade courts, cuit and the courts district was Accordingly, ness. the Commissioner up thus set courts continued exist as right in disallowing the credits claimed courts circuit (except expended. the sums so period February July Right En Banc. The to Sit of the Court 1802) effective date of until Judi- originally three Code, January This was heard cial U.S.C.A. seq., before its decision 1 et out judges circuit the circuit went when courts court, order, by special original directed that existence. scheme banc, consisting of Supreme jus- court en Court be held reheard it, judges of circuit tices appointed five the district courts to circuit appointed case has now active held district service. them, en banc. the court the circuit be held courts to heard considered pursu- supreme justices rehearing entered and district The order court, together. provision effective In 1802 sitting of this ant to Rules assignment out made set the definite March authority justices several a ’circuit footnote.4 judicial provide assigned for sit- When circuits. and appeals court thus thus by judge designated (Constitution of the senior the Court. circuit Rule Quorum) from time to time with concurrence is as follows: majority judges Judges a the circuit who are Who Constitute “1. The Court— designat- judge Judges in If a active service. so to Sit. The court It —Number of disqualified justice, ed in at- attend when is unable to consists of the circuit or is judges tendance, of the circuit sit in a senior of the matter and judge designate Dis- circuit shall an active in active service. circuit who are judges judge stead, or, judges circuit to sit in circuit his if trict and retired specially judge qualified active circuit court and able sit in the when the circuit by sit, assigned provided judge designated circuit retired or a district or judge judges court the circuit. shall sit law. Three except by matters, Judges “2. Be Cases to those which Heard So to hear all Assigned. pending by special All matters in the order directs the court except court, proceedings ap- by further en banc. heard court peals petitions previously and on heard Adjournment Court Quorum “2. — merits and Adjourned. matters directed to be By Two Absence Whom of— by banc, heard quorum. the court en judges shall be heard If shall constitute by judges day ap- any decided who have thus quorum not attend does assigned to sit holding court, the court at the pointed a session of the hearing, practicable. time of if adjourn, may any judge, does attend who Exceptions. proceedings time, or, “3. Further ab- from time in the the court appeals petitions previously may any judge, heard on the clerk ad- sence of except petitions merits, rehearing, day day. journ the court by shall be heard and Interlocutory determined Quorum “3. Orders — judges original appeal Any judge attending heard the who or when Absence of. petition, practicable, may present may quorum if heard make less than a any interlocutory at time when the court other- relat- all ing orders rehearing any pending in session. wise Petitions court matter disposed pro- shall of in hearing the manner

preparatory or decision by rehearing grant- Rule 35. If vided thereof.” reargument ed the judges shall be heard (Assignment Judges) Rule 5 as fol- original argument, heard the who : lows practicable, if unless is directed to be By AssignetB-Disqualifica- Whom “1. court en heard banc.” Assigned Judge Designation tion of — judges 5 Lang’s Commissioner, three who Substitute. The are to Estate 97 F. daily sit at each session shall 2d 867. pellate tions whom two shall which shall Act of which ed the circuit 827, 28 U.S.C.A. this in each in the Second in which their existing ed the circuit courts power and same circuit present directed to ditional circuit power and laws.” “another circuit same holding the circuit 517, tinued directed utes. The ond to the circuit.” This ried into nine appointed a circuit together or either of them same 1887, 347, trict cuit court was held side holding circuit court separately. tices circuit soon became circuit “Sec. In the The burden each U.S.C.A. circuit it was enacted “That for act, which, justice established. Circuit, § existing were as follows: in his at circuit qualifications, and qualifications judge c. respective provision shall power jurisdiction, judges of business of the March 1, justice April By 2. circuit a laws.” Thus after circuit circuit two circuit justices. light increase, 26 Sec. 607 of the Revised Stat- justices of appoint appoint be a the Act March circuit That jurisdiction jurisdiction circuit, consist Stat, 826, judicial court of 10, 1869, upon 3, became too 217. The the district Stat. of the circuit and primarily as judge, judge, judge, circuits, constitute the United 1891, court §§ * * * this circuit court of there is we See Sections courts, Supreme Court allotted jurisdiction particularly “in as is hereafter limited judges 212, and shall judge, the Act of three might circuits this work. shall background appeals.- c. who" of record with shall has under appeals, provision shall who shall have the Supreme each circuit c. circuit courts the President Sec. there were the President was ed 216, 517, therein therein now law was that the became heavy largely responsible in which a hereby see, thus Second Circuit judges, except shall have the hold the who have the have the same States, might quorum, which creat- of March have under each of possess in the Sec- judges, there were passage These also therein- Court Stat. appointed known shall relieving 3 of we turn appeals, existing the dis- created shall be Rev.St. associate hold within by the creat- three. same trict 826, sec- was car- jus- ap- the By ad- cir- eral re- of who were ture of the called on. We were likewise if of appeals within the several district namely, and the circuit from which the petent to judges drawn was intended made court of % On tion ij£ ^[*] sit on the trial or question tice or or particular more. not be made up shall be seniority cording Chief-Justice Justice the court judges spective shall be after or signed circuit court of appeals he shall circuit court Court It will be seen that no “In “Sec. 3. three judges the later court was an associate attend that circuit district court, primarily district provided. of case the district the court: judge who were shall from within each » contrary to each to such order or circuit apparent that the competent competent judges in the circuit court of sit permanently appointed justices Court and circuit of their circuits in the manner herein- appeals to serve as associate judges That arrangement, circuit provisions as the three preside before whom a cause or assignment or an appointment to be staffed judges attend to be been tried existing full judges district judges within the judges stress drawn from these judges judges it appeals hearing justice circuit, respective come, which the act created. Provided, of the absence of the court at to sit in associate justice justice the attendance of the as either section made “com- held at circuit, Chief-Justice judges within clear that the sit respective within existing groups judges circuit from time to time Supreme the order of were the since was shall be provision among of such cause or within their re- which was that circuit, attendance of a new significant by judges the new of the heard in a dis- judges, circuit provision 3 session commissions. of the circuit groups judges the court ac- That no justice and the sev- three each circuit Chief-Justice section were to be court, the circuit time shall circuits,” Court as- designat- Supreme Supreme and the appeals. preside, general circuit, circuit. groups justice judges it, one or circuit, circuit Chief- group could court court court ques- shall who only it fea- jus- but of having appeals some judges pri- existing groups from to the circuit court mary responsibility holding doubt. . justices courts, namely, the for the circuit passage At the time of the Judi- Court, judges the circuit were, appears Sec- cial Code there from as judges circuit courts and district 1131), tion four Code (36 Stat. the district courts. Second, judges circuit Seventh fact, pas- Eighth continued This situation until Circuits. In view of the 1911, sage 3, seen, Code of March we Sec- the Code in Judicial 231, provision By 117 of c. Stat. 1087. Section tion 117 carried forward Code, 1131, Stat. U.S.C.A. Section 1891 that the cir- Act of 212, provisions appeals cuit Section should consist 1891, supra, without judges, Act of were codified three an anomalous situation change, regard, least, material follows: “Sec. 117. created with the Sec- at ond, There circuit Eighth shall be each circuit a Seventh and Circuits if the appeals, shall consist of judges court of which Code made the circuit officio ex judges, judges court, three of whom two shall constitute in each of since quorum, which shall those circuits there were four circuit record, appellate jurisdiction, here- judges. Since their circuit courts had been inafter abolished, limited and established.” judges had no court at all except the circuit appeals, court of Code on its ef- abolished Judicial they obviously could be members not all date, January existing fective question of a court of three. A serious courts, depriving circuit thus the circuit presented thus was the cir- to whether judges of the courts had judges cuit judges had become ex officio primarily responsible We since 1869. appeals, the circuit court of and as contemplated think the Code the cir- appeals whether the circuit court judges cuit should thereafter be ex officio having more than three those circuits cir- judges appeals circuit court of rather judges cuit of all the circuit consisted merely competent than that should be judges them, if three pre- sit in the court —which was their latter, three. Although express provi- vious status. sion to effect appears ques- evidently Code It was to answer these enacted, originally January seems us to that the tions Act of fairly inferable two other provi- passed. This act sions of the Code. The first is that Sec. 118 of amended Section Judicial Code, Stat. Code, gone U.S.C.A. which had U.S.C.A. § provisions into which the of Sec- days previously, into force twelve tion 3 supra, of the Act of provision were car- express adding thereto the that' judges ried eliminated circuit from the judges “The circuit shall circuit each classes of “competent described as appeals in the circuit court of court, to sit” while retaining circuit, duty be the of that and it shall category “The Chief and the as- judge sit- each circuit circuit to each Justice justices sociate of the as- judges as one of the the circuit court of signed circuit, to each several dis- appeals of in that from time to circuit within, judges trict each circuit.” The according time law.” to provision other supporting inference is When the became bill which the Act of although that the circuit judges- were no Senate, 1912was under consideration in the longer “competent sit”, referred to as charge Senator who Sutherland was in of provisions later of the same section which (47 Cong. bill stated debate Record yrere also carried forward from Section 2736) -change : “It makes no whatever in supra, of clearly Act of showed existing law except make it clear judges that the circuit were intended to judges that the circuit in the various cir- hold the appeals circuit court of and that cuits of the United States shall constitute judges district only should desig- be appeals.” report the circuit court of The nated to attend if the court could not Judiciary Committee on the up made the attendance of the Representatives circuit (House Rep. House of justices judges. and circuit It Cong., must be 62d 2d Sess.) likewise said: conceded, however, that the Code “This bill deals with a exist- defect Judicial did leave the relation judges of circuit ing law. It makes it clear cir- that circuit and judges in the circuit number of circuit judges cuit constitute shall statute, legis- confirms the construction think this of appeals.” We court of adopted. what which we doubly certain history lative makes act, its namely, that apparent from the our Other considerations confirm conclu- circuit effect was make clear judges, sion that this five court consists of primarily been judges, who theretofore had three. that under the We have seen courts, holding the circuit responsible for amendatory five all circuit of 1912 instead constitute thereafter should judges judges of the cir- the circuit appeals. circuit court of always appeals. cuit court of It has was that provision effect practice the circuit the court all having more than each circuit case of adoption judges join rules court judges the size three circuit appointment court and in the clerk equal number was increased this, Conceding and librarian the court. by law. judges circuit authorized may suggested judges it three that but ap- may in the court sit to hear and decide suggested provision may act, capable peals. however, it be the should the Act language construction. The “There cir judge to sit in the duty of each circuit circuit shall be each circuit a court of time to time appeals “from cuit court of appeals, which shall consist three judges that the according to law” indicated court, provided judges”. It is not that the sitting sitting. But were to rotate merely deciding hearing appeals, when law” find “according to and we judges. shall consist of three referring to statutes provision in the Furthermore, completely since the act is assignment of designation or regulating the silent as to manner in the circuit judges court “from time in the circuit to sit judges who are sit in sessions hand, Section On time”. (a are to the court be selected further Code, 1132, 28 U.S. Judicial persuasive indication that all are entitled when regulates times C.A. § to sit) the court consists of three if shall sit. appeals courts of circuit appear first it would that the three cir- of law that provisions to these doubtless judges who bench at cuit ascended the refers, making thus Act of opening the term would constitute the judges to sit duty the circuit power court and as such would have the law fixes the times which at procedure rules and orders of limit- make sessions. its ing the of their fellow judges activities necessarily We follows think excluding entirely them from service that the effect of what has been said Obviously a construction the court. amend Act of passage which, ambiguous statute would counte- Code, implication Section situation, improbable nance such an absurd court should con- provided that the is, ought as it not to be entertained. provide judges, so as three sist Second, Eighth Cir- Seventh court, distinguished A from the four consist of the court cuits quorum its members whom it au necessary effect judges. further name, thorize to act cannot consist circuit additional thereafter as than the number of its less whole mem circuit size of the authorized the The whole cannot be less bers. than the particular circuit appeals parts. sum of its To hold otherwise is not Consequently, by thereby increased. merely plain to affirm a contradiction in 1930, 438, 10, 46 Stat. c. of June terms, destroy authority but is also to 213d, 538, Circuit Court 28 U.S.C.A. § open of court as a court and to way in- the Third Circuit was Appeals for of and conflict among confusion possible it's the Act judges to four creased personnel procedure and deci 1903, 24, 28 U.S. c. apt For an illustration see con June sions. interesting 1, to five. C.A. § in decisions disclosed Han flict 213d— John 1936 that the Act added note Bartels, 180, Co. v. 308 U.S. cock Ins. 60 Circuit, judge the Third fifth di- L.Ed. 176. It cannot pre appoint the President “to an addi- intended re rected sumed judge it increased the number of tional circuit United States when circuit sult ' Appeals three. What we judges Court of above Circuit Third have said why clearly agree we cannot contemplated Circuit.” This act makes clear contrary Denman’s Judge addition court as well conclusion in an Cir., power existing Commissioner, to sit Lang’s Estate statutes has en banc. F.2d 867. We conclude that this provide, power done Rule it has Conclusion. banc, 4 (1), the court en for sessions of majority having A conclud- the court judges consisting all of the the circuit that the decision the Board Tax ed court which circuit active service. The reversed, Appeals an order will should be reargument present heard of the re- reversing entered that decision and accordingly lawfully constituted. manding the direction to re- the cause with has affect in What does said tax in accordance with the determine the provision way the 117 of the Section expressed majority. view Code, Stat. U.S.C.A. § Judicial 212, state I am authorized judges two of this court shall opinion. concurs this JONES quorum. Consequently constitute competent provide, entirely for the court to CLARK, Judge (concurring). Circuit done three judges as it has Rule all writer of this con shall sit hear matters unless other- reversing specially judgment judges wise ordered that two the decision curs Appeals. quorum. shall constitute a It has been the the Board of Tax He is fur right practice appeals for the circuit courts of to thermore satisfied about groups judges. sit in of three We think to sit banc and en careful analysis practice clearly stated excellent one which facts. He wishes, however, express exceptional followed in all but a somewhat Where, however, legal emphasis is a from that his cases. differ- different him, constituting, with the ma brethren view among ques- ence in judges jority the court. importance, espe- tion fundamental interpreting task cially obscurities case where two three always taxing the various statutes holds judges sitting in a case have a view one’s technical attention. does not so contrary to' that of the other three generally one’s human interest hold as well. court, it is advisable that the whole however, bar, parts the case at both opportunity, court have the if it thinks it judicial nimbus are involved. The ex- necessary, to question. hear decide the practices at bar of the case have re- act practice sense and sound Common dictate the unanimous condemnation of the ceived five court should be courts,1 periodical legal text position principles to decide of writers,2 political scientists,3 practice to law and which the court is to finally victims, various of the intended think be committed. We the statute does lobbyists regulation statutes bear way not stand and that the court has witness.4 The victims were the Academy of Political and Social Science bying, 45 Harvard Law Review 1241 82; McKean, 68; Bernays, Molding Bernays, 653; Odegard, Political Parties Ed., p. (Pressure Groups ity-Lobbying, 12 Fees—Public Group Influence Public Vol. Group Quarterly ty (note); Public Utilities: (note); 2 15 Amer. & 3 Bryce, Propaganda Law Review 834 Trist v. 1, p. 555, Pressure, Pressure, 969; Legislation Lobbying Crystallizing The American Child, Policy, (note); A State in a Vol. p. Opinion, Eng. Ency. Texas Law Review 85 124; Catlin, The Role Contracts — (note). 2, pp. 66, 514, 520, Annals 14 Boston Universi Democracy, p. Wall. Public Contracts — —Control Public Propaganda), Legislature Expenditures 14 Cornell Law Commonwealth, Opinion, Contingent American Opinion; Law, of Lob Illegal 219; 2d p. p. by, 1924) Ann. cial Sciences I.Gcn.Laws Muller, Lobbying 50-302 to roll, 1930) 1926) (1930) 8; Okla.Stat.1931, Herring, Lobbying, Crawford, (1919) S. Ohio Gen.Code §§ Wis.Stat. (1923) Politics; ence D.Comp.Laws §§ Ga.Code Ann. 325(l)-(5); Shelf, 28-33; N.Y.Legis.Law (1909) 66; (1930) c. c. §§ 7154; Neb.Comp.Stat. Herring, (1929) 304; 8108-16; art. 40 Vol. §§ Inside §§ 1999a (1923) §§ 43-48; § 565; (Pago 201-10; N.H.Pub.Laws 5477-84; §§ (Michie, 1926) (1929) Ind.Ann.Stat. No. Lobbying Story 346.20-26. §§ 1-8; 2292 Md.Ann.Code 1932) 3). Kan.Rev.Stat.Ann. Odegard, Ency. 4-14; §§ Key.Stat. (modified); Mo.Rev.Stat. Me.Rev.Stat. §§ §§ (The 5092-5100; of the So- Lobbying; Miss.Code 6256-1 Congress; 1776-73; Pen.Code (1929) (1926) Pressure (Burns, Refer- (Bag (Car R. §§ 72 Representatives pensation Senators and of the Unit- as a this class sinister element in expressed feelings contracts, Gilbert, ed States who in of App. Noonan v. they other tax de- where D.C. 68 F.2d therein cit cases position exemption nied organizations, a “sub- logic ed. The of this last has been University stantial of which is the activities criticized in 14 Re Boston Law carrying propaganda, cited, may, on or otherwise at- (note), view 834 above tempting, legislation”, think, justified U.S. writer influence be Int.Rev.Code, 101(6). ground C.A. size of a con tingent temptation fee of im adds to the plain. argument a The reason is If propriety. Whatever, then, ultimately reason, critique pure of the matter decision, correct it must based on a re appraised might apart from its source. pudiation Appeals’ Board of Tax disputed upon argument depends As most theory legitimacy. depends premises the burden of verification as-, proportionate to) impartiality (is proceeds, then, The writer on the arguer. there exists sumption Furthermore here claimed sincerity. If imponderable a cause deductible met with the condemnation espoused by you know or know person every student, a otherwise, judicial or sincerity of, insincerity is bound to democracy, his public affairs in who has ex- presenta- weight you his give pressed affect Does thoughts his on the matter. particular- These considerations are tion. constitute a that universal condemnation democracy which applicable mandatory adjectives tends ly gloss “ordi- theory away increasingly from Burke’s of nary” “necessary” The writer thinks ? representation the continental says toward and he further con- it does imperatif. theory thought judicial The trary expressed by per- of mandat view some express has attempting the writer sonalities rather shocks him. One phrased: “A different element speaking majority been well latter for the a divid- between the thus, infused when the nexus puts position “The ed court reve- hidden, principal propagandist and his are not nue United States over- laws developed policy ad- for tribunals have squeamish”, Alexandria Co. v. Gravel Com- secret influences Well, the exertion of missioner, Cir., verse to 616. 95 F.2d question they upon public The bodies. the writer concerned are. as far as identity disclosing the legality suggests of not to the learned Circuit The writer public action seeking first quoted to influence that the will those above lobbying contracts. for his probably arose in connection with not thank him somewhat slightest interpretation legislative hint of fraud Though without the of their gratuitous many de- dishonesty, contracts were say morals. writer learn- policy. against public Se- clared void ed court seems to have had some agreement. very qualms cases crecy they doomed the to attribute same refuse public dealing, where inter- weakened their Congress. Anyway, frank demand by naively asserting to touch Secret efforts that the concerned. own decision ests are secrecy employed legislators, minds of State Senator of Louisiana lobbyist Highway gravel” between cerning connection “sand and sell eyes did client, “kingfish” domain these are evils Commission (he any “personal attitude towards influence” This same tribunals. not exert prin- undoubtedly whose ex- agents employed because his activities legislative knowledge geology). is revealed stat-. cipals pert undisclosed are registra- requiring many states utes course, is, important ordi- word lobbyists”. Public Utilities: all tion of cases,5 Although most nary. Opinion, Public To Influence Expenditures character them,6 conjunctive stress the Quarterly (note). Law 233-234 compelled 14 Cornell rather phrase are necessary, rea- for obvious ignore fit emasculate Although the Board saw very things (and all, very After few circumstance, noticed that sons. might high- indispensable. The people) contingency stress of com- few generally

cases pages Edition, Phrases, Comm., Cir., Permanent Hubinger v. 36 F.2d Lucas, Cir., 169-175. 724; Co. Bros. v. Seufert Cir., Lloyd Cir., 528; Com’r, Lucas, 5 v. A. Harris & Co. 44 F.2d Son, Sprunt 842; & F.2d Inc. Alexander F.2d ; Cir., Com’r, F.2d 424 30 Words contemplation of reasonable “help- "reasonable milder authority7 est substitutes care under men” like “reasonable the case business certainly practices ful” up something of an sets respondent. the circumstances” “helpful” bar were to at juries imponderable As standard. meth- possible There at three least latter, the courts with the so courts wrestle approach construction ods of to a struggle the former. To perhaps with must ju- all received key adjective. They have weapons so, they equipped do must all, the writ- approval, dicial testimony so under shape Rome judgment, lead the same er’s to confronted with this test the writer is also important here non-deductibility, not it is he has proof the same failure of business Eng- adopted. a matter one As is already spoken of. “customary defined, lish, thus the word is customary, order, general, angle to The third established incidence commonly normal, way met thinking usual or writer’s both the most satis above, kind, often, with, factory not usual most in accord with sound below, average qual- principles legislative interpretation. level of or rather It Century commonplace”, postulates Diction- ity, New a de understanding an of and p. ary, working 1197. It clear that the writer sire for the the demo effective position process whether the organ determine cratic all present oc- practice is is not a common process. isms of From that follows assumption any American business world. capable currence in the word reported disapproving of the evil interpretation cases said consistent ef proportion to the extent working seem small in fective must receive such an inter corresponding pretation occasion that world and and no other. And from that fol is, however, an un- That assumption for its exercise. lows the further that the Con guide ac- does not take into gress reliable will be held to have intended to in may have been other factors which ordinary count clude word at minimum Testimony producing causes. as to the practices falling below the standards reality custom the usual either given which the ap courts have their own instance, perhaps although specific proval. shame- In other words courts will take ful, reality could like sad have for granted did in failure produced. A offer capable been pleasanter being tend to use word opposite tendency of an evidence stretched to cover acts which both it and the generosity a most cost the ethical virtu- courts and to benefit actors which condemn taxpayer his deduction Welch v. Hel- ous help. it and the courts refuse both Both vering, above cited. courts, and the as the writer has pointed out, many expressed times interpretative ordinary A test of second attempts their unfavorable of these is derived from law torts. cases public pig poke sell the welfare in require proximately act to be business public service. Mr. Cardozo in Sprunt caused. Alexander & Son Justice Helvering, cited, Welch v. above with his Com’r, cited, above Com’r v. Continental said, felicity up usual “The standard set Cir., Co., doing F.2d 625. In so Screen law; the statute is not a rule of it is rath seem, rate, be prescribing at way life”, 111, 115, er 290 U.S. foreseeability requirement of held essential L.Ed. 212. The writer refuses recovery in cases of causation. indirect way Congressional to sanction the of life foreseeability circum- That writer’s envisaged Congress by the Board of is, course, stance the “reasonable con- Appeals. Tax men”, templation of reasonable business Mertens, Paul & Law Federal Income much what the 3 Taxation, So writer thinks theory p. principle. This would seem peti- How much for what authority? ideas. The Many stem from some association of tioner claims to be the average smacks of the rea- than word more decisions are cited in the briefs thought sonable man leads can be found in volume 3 of Paul & Mertens, proximate probably cognate cause. Law Federal Income Taxation. strug- to allow the deduction of foresee- thereof (cid:127)sensible authors The learned note recovery gle as it is to able allow has shaken the courts in their ef- seems, nevertheless, harm. at foreseeable a forts to arrive what writer is declar- “ ** * statutory to be the sound conclusion. ing novel canon construction. The Helvering, Welch v. 290 U.S. L.Ed. 212. 54 S.Ct. question is the rected to referen Underlying swaying the whole the voters in a major option, Company the one dum on flict two forces. On local Ward between discourage stultify Conn., Reports, Ap Ltd. English side is v. desire Law peal Cases, even by denying p. acts 145.9 .criminal as, ex- incidental benefits therefrom sense, Appeals, The Board of Tax in one pur- ample, income tax deduction for two of this other court and in connec- expenses incurred poses of the sense,10 courts, of other in another stress This is the the criminal act. tion with the rule of administrative construction. conflicting force policy’ ‘pu'blic force. They refer, course, Regulation Ar- statutory to deduct warrant arises from deduction, ticle least any forbids or at ordinary and deduction, quasi-charitable a sort of any predict with business. degree cannot One corporations expending money to bying “for lob- right certainty the to such purposes, promotion or defeat of necessitating the ex- act deductions. If legislation, exploitation propaganda, criminality, wholly penditure tainted with including advertising other than trade ad- prevails and the deduction public policy vertising, campaign and contributions for hand, if the act does denied. On the expenses”.11 The writer of this violence, by the mores of the tested great has quite agrees little faith in rule. He may, day, sometimes tortuous the Court with the learned author of an article in the permission de- emerge with a .reasoning, says: Yale Law who Journal Mertens, Law of Fed- duct.” 3 Paul & “Among the innumerable fictions which Taxation, p. 44. eral Income part law, have formed a science Nevertheless, authority, if weight of that which holds the record for unrealism is important, writer’s side. that is (the the doctrine that where a statute has Ap of Tax in the Board cases both The peals reenacted in form the same after ad- an are collected and in the courts construction, Congress ministrative has cited, Mertens, above in Paul & collated silently approved incorporated the ex- headings, Fines and Penalties under § ruling. isting laws Our tax are reenacted 23.46, 23.45, Legisla Cost of Counsel Fees § repeatedly so this rule is invoked more ‘Lobbying’ Representation: Fees tive general often that the statement as to the titles, 23.47, cognate Char validity regulations standing alone. Un- 23.66, Ex Gambling itable Contributions § fortunately, presumes 'the reenactment rule Exchanges Illegal Transac penses on the an attention 23.156, Statutory Provision for tions § legislation connection with tax which is 26.02, Organizations Nature Losses § than real. thought more ideal is that perhaps Exempt 32.14. It Are Which Congress, passes act, each time a revenue general to note that the same interesting regu- has omniscience as to all outstanding arisen under somewhat sim problem has judicial lations and decisions and statute,8 ilarly English and that the framed thoroughly diligent will be to correct Halsbury’s appearing Laws of cases legislation interpretation with which it Ed., seq., p. 152 et seem to England, 2d disagrees. thought There follows the harmony. ethical view for be in legis- is action that a failure to inaction contending. writer is See Inland which the implies agreement late an with all out- Warnes, Co., & Revenue Commissioners any apparent standing'regulations, without Revenue Commissioners 2 K.B. Inland interpretative as to their distinction Glehn, 2 K.B. 553. There is also v. Von legislative character. Privy Appeal Council on one “Anyone cognizant processes expenditure wherein Zealand from New perfectly of tax exigencies brewery, deduction was denied simple with the fact familiar advertising printing di canvassing, (note); II, Law Review 125 I & Taxa- 9 Geo. Oases Columbia 8 & Income—Deductibility D, 3(a). of Counsel r. Sched. tion — by Corporation in Fees Paid Defense of Corporations 9 Taxation —Income Tax — Virginia Prosecution, 17 Law Review 831 From Gross Income For —Deductions (note). Ordinary Contributions Charitable Scavenger Co., Expense, Vide Sunset Inc. Law 30 Columbia Re- Business Cir., Com’r, F.2d (note); Taxation —Income Tax view Bribery Mertens, cited, Deduction —Commercial See Paul & above Necessary” “Ordinary Expense, § 23.60. relations, artificial, ganda concerning international presumption is not ”*** Paul, treaty policy rights, historical and the large part in unfounded. enemy-owned in Stat United relative to Regulations the States of Tax Use and Abuse is sums property in times war. Construction, Law utory Yale 49 Journal its deduct from taxpayer seeks which the to 664.12 necessary ex- logic in tax- gross lack of income as no The writer finds sources,13 re- its net penses computing illegal of its business income ing major- type of ex- same subject to tax. fusing a deduction for the income income right all, applicable to ity deny the deduc- to penses. the the After word which, my income, the broad- medal, upon grounds, tions one face of the none applicable opinion, words possible, whereas the est valid. the many the limitations to other have the my the conclude Three of brethren Further, the writer has tried indicate. holding Appeals erred Board Tax policies and as a whole embodies medal “ordinary” business deductions to be the Congressional must probable intent which category the expenses therefore within Any application. discour- consistent have by the Revenue permitted deductions agement gains entails cor- ill-gotten it, they take Act. As understand I sympathy responding lack “ordinary” expenses were view that everything getting them. Thus means paid in of a execution were because taxed, and as takes in must be rascal against public as was void contract which expends possible must be of what he little as paid policy in an and because were en- conclusion, might writer exempted. against public policy terprise which was of the Board of Tax that the decision note not meet the stand- which in event did Appeals contrary runs to their recent hold- morality public affairs set ard ings.14 political science. students of MARIS, (dissenting Circuit the contract be Their conclusion part). principals tween my fully opinion of concur in I upon policy is the de public rested against five of all that this court consists brethren Appeals of the Dis Court cisions of and that judges in active service circuit Fur Gesellschaft of Columbia trict banc, as did in lawfully sit it en Brown, H. Telegraphie M. B. v. Drahtlose however, myself, unable find this case. I App.D.C. 78 F.2d and Brown 64 the conclusion which the agree with Telegraphie Fur Drahtlose v. Gesellschaft to the merits of have reached as majority App.D.C. 104 F.2d B.M. H. shall state. case for which I reasons provisions of a similar holding void the upon and an taxpayer entered the business alien claimants between contract provided of its agent bring about the return seeking American property through pas- compensation agent on a principals’ seized payment legislation author- contingent Congressional basis. Those decisions sage compensation upon ground that Settlement return. placed Its izing legislation” Act was “favor contingent and measured Claims to be of War legislation” from “debt return of the distinguished securing the its success procure legis expenses “favor contract was to all that a property bear contingent against pub fee were lation” Among these its effort. and, therefore, It was ac Ivy pub- policy void. paid Lee for sums lic substantial agent might not re cordingly held that work, making of ar- including the licity stipulated contingent speakers speeches and fee rangements cover country cooperating grave I doubt of the contract. around comments, as well thus drawn in editorial the distinction press soundness be legislation” legislat and “debt “favor items, F. Martin and tween and to W. news propa- preparation of I that in am clear event the Clark ion”1 Reuben J. Interpretation istrative Law L.R. Easton United States v. Cf. Review Construction Tractor (note). Statutes, Sullivan, 274 U.S. Equipment a Guido On Admin Harvard Co. A. P. andria I 323; signed 190. understand Comr., Kyne Comr., The distinction T. Nicholsonv. Gravel Co. v. G. provide for it, B.T.A. sought between 35 B.T.A. 189; Comr., facilitate Com’r, to be Mrs. William 202; 35 B.T.A. drawn, B.T.A. Alex set- de- validity bearing and not contract has be accom- sought result us, question plished. It, therefore, before for reasons seems to me will wholly be discussed But even if its bear later. immaterial the decision ing be conceded to me that Set seems before be- us whether the contract tlement of War fact principals Claims tween the and its legislation.” “debt pro- contingent because of the void fee for curing majority what as “favor describe Enemy Trading Section 7 of the with the legislation.” The fact remains Act, Appendix 50 U.S.C.A. authorized contemplated by business the contract was by property the seizure the alien custodian compensa- through, contingent carried the enemy-owned property of such as the textile paid taxed, being tion was and is now and involved, properties pur it here did not but expenditures sought the here to deducted be port properties to without confiscate expended were that business carrying on compensation. or contrary return On the earning compensation. al- that clearly contemplated it that the former leged invalidity obviously of the contract owners had have claims which would taxability does not the the affect of income war, by 12, dealt with after the Section and see I no basis for that holding it affects 12, provided Appendix 50 U.S.C.A. the act - expenses. the of deductibility the any “After that the of the war claim end enemy ally any enemy any or of of to It is majority said that since money property or other received held expenditures question made in ex- were property alien or custodian de ecution of a void contract “cannot be posited Treasury, in the States United ordinary. They deemed to be are outside Congress shall settled as shall direct.” ordinary the norm of business conduct.” recognition not only Here was legis- also said that the solicitation of on existence claims of the lation, commonly “lobbying”, known as property owners of but former seized also public policy against has been con- clearly implied a invitation to them to by judges political demned scientists legislation providing solicit from moneys payment carry- and that “the their claims. for the settlement of That public policy purpose contrary out a to ing Claims Act which Settlement War ordinary.” my no means As col- provided finally for these claims was “debt league puts it in his CLARK concurr- quite seems me legislation” in the clear public policy, ing which he sug- light these circumstances. prohibits must gests “lobbying,” be read however, already suggested, mandatory gloss upon adjective As I have though taxpayer’s I think that even “ordinary” in the statute. me To this is interpretation legis- contract was void because violation of but amendment policy upon public language. 23(a) which frowns the offer- lative Section the Rev- compensation pro- enue of 1928 ing contingent authorizes deduction computing ordinary net income “all the legislation, does curing it not follow that expenses paid necessary paid expenses carrying agency out the or incurred year during constituted the contract were not ordi- in carrying taxable expenses. illegality sug- nary majority business or trade business.” The I think compensation gested sight is as-to fact the manner lose the reference existing against legislation,” claims tlement seem to follow “debt ordinarily government general which confers it since devoid upon public and, therefore, benefits individuals who had interest not sub- against ject government prior public scrutiny during process claims passage. enactment, provide This distinction seems would a much greater expressed Ap- opportunity legislative corrup- first the Court of been legislation” peals of tion than the District Columbia "favor which ordi- supra. _ narily larger case, pub- first Brown I. do not find section of the affec.ts is, therefore, subject lic referred to in the distinction decision much greater public being attention -of the the United while legislative contrary body. sidered On the States. rule seems to to strike contingent down such For in which eases fee con public against policy ap- uphold contracts if it tracts have been similar likely pears Spalding Mason, are see circumstances v. encourage corruption 738; facilitate U.S. 16 S.Ct. 40 L.Ed. legislative 41,S.Ct body. Child, Amos, Trist Winton 255 U.S. U.S. Wall. 623. If 65 L.Ed. Ulvi, and Hollister v. test, is, as I think this is the would Minn. N.W. upon business present In the ob seems any trade or is to business. was that entered that which contemplates that the act vious to me passage through propaganda soliciting sorts trades engage in all taxpayers will “lobby- commonly known legislation, which businesses including and businesses activity is an ing.” This which public policy even criminal against are has prohibit has expenses never seen fit character, those and that freely re- always indulged without necessary particu each ordinary and stipulated in record facts straint. The may be de type or business lar trade do not show that the before us derived therefrom. from the income ducted practices any questionable indulged in character of The determination is, respect of which the that its activities in expenses against public majority incurred were based, therefore, not to upon govern- policy. It was encumbent ordinary busi suggest, “the norm taxpayer’s activities ment show be made general ness conduct” against public policy illegal if such expenses were light of the relation Certainly It to do so. was case. failed As Mr. the particular business. trade or the presumption, Helvering, may indulge this not the in Cardozo Welch said Justice 290 U.S. do, peti- majority as I the that the think 78 L.Ed. 54 S.Ct. guilty improper was conduct not though tioner “Now, ordinary, there must what is it, merely constancy record because disclosed always be strain within a produce did affirmative its not evidence of by time none the less a variable affected is innocence. place and circumstance.” me majority It seems that question upon which we are called converting penal into a stat are decision is Board determine whether the of Tax to be what was intended ute Appeals finding error in as a fact solely a measure. revenue The revenue that the activities for the cost which laws, aptly said Judge Sibley in Alexan taxpayer seeks ordinary deduction were Cir., Commissioner, 5 Co. v. dria Gravel particular business which it was over-squeamish. not seen, 95 F.2d “are engaged. taxpayer As we have income, gross broad definition of By the engaged Ivy arrange Lee publicity illegal is business arising income prepare Martín propaganda. and Clark to illegality though even be one de taxed publicity I think it must be conceded that by the itself. United clared Constitution propaganda procuring are methods Sullivan, 274 U.S. 47 S.Ct. States v. legislative action which have been uni- A.L.R. 1020. The employed versally every this and fixing provisions of statute the deduc nation. democratic Since the business arriving regarded in net tions at the employed which that taxed, is income which alone U.S.C.A. legislation by Congress soliciting it seems 23], are U.S.C.A. Int.Rev.Code entirely expenditures to me to be clear that [26 defining unqualified as those broad and publicity propaganda “ordi- wére gross income.” is no the taxable There nary” in its line of business with- provisions in these that suggestion meaning of the Revenue Act. is It “ordinary” to be restricted in mean is point word wholly beside the to consider whether only expenditures which are not ing to those expenditures be ordinary such would public policy which meet a moral against or generally. is doubtless business that true and expenditures laid down textwriters lobbying standard activities are not contrary it has held persons engaged courts. On in- ordinary case expenses are even deductible that business or commercial mining, manufacturing busi- the nature busi though by nesses, lobbying reason of merely was not but here clearly they payments taxpayer’s involve so iness business but incidental “protection.” I criminal as bribes business. constituted do not Stein itself Cir., States, suggested 14 F.2d 564. berg United that that understand Hough expenses demonstrated in not of taxpayer’s As were the kind penal lobby- income law not business ordinarily tax incurred in the cited expenditures in measure. taxes these are ing. statute revenue To hold that “ordinary” meaning enterprises within the derived from criminal come they think because we that countenances well as those which the law Revenue concept undefinable purpose net to tax the income de contravene and its courts called mind which the have receipts. gross judicial therefrom rived “public deemed policy”, Finally two because court take ground improper by political to tists scien- be unwise that Article 262 Regulations prohibits reading seems to expenses me the deduction of is not there. into the Revenue Act what character involved in I this case. placed majority agree doing so the conclusion of Board which stamp illegality Tax Appeals conduct article of regulations be criminal. prohibit has never declared does not deduc- restricting plain I think that thus expenditures tion ly may if fair- exercising language the act ordinary necessary classed as bus- .this legislative judicial expenses. function. and'not a iness question The article in power. agree I cannot that we have follows: “Art. 262. corporations.— my Donations colleagues suggest Two of Corporations are finding not entitled Appeals to deduct from Board of Tax erred gross income expenditures question were “neces- gifts the sary” contributions or individuals expenses the activi- because deduct under section 23 business (n). they represent by corporation be shown Donations made ties which to have cannot purposes proximate operation cause of the connected been the business, however, its Congress. enacted Their when char- limited to is, institutions, hospitals, neces- itable those áre view educational object institutions achieving result in conducted for sary which benefit employees dependents sought by the the ex- or their proper are a penditures incurred that in this deduction ex- taxpayer’s expenditures penses. could not rep- case the Donations which legitimately proximate the have been cause the resent a flowing consideration for a benefit directly passage the-corporation sought since Con- to as an incident of presumed to have acted gress must in- its business are be allowable deductions from public I example, interest. can- gross the income. dependently not plates ductibility For a rail- street way corporation may Act agree that the Revenue contem- donate a sum upon the money organization such restriction de- to an any intending to hold expenses. Certainly city business oper- convention in a it suggested ates, that expectation it has never heretofore with reasonable that expense deductibility of a business is holding augment the contingent convention such will upon the success of the business through greater income a its number is So enterprise in which it incurred. to people money using the cars. Sums of ex- impose an intolerable burden pended purposes, hold would upon lobbying promo- taxpayer and Commissioner alike. legislation, exploitation tion defeat of any suggestion merit in the Nor do I see propaganda, including ’advertising expense was not that because advertising, trade than contributions independently have acted Congress must expenses, campaign are not deductible taxpayer’s activi- and not result of as a gross from income.” seems to me advertising Mercantile ties. arranged Regulations article is analogy. my that perfect I not think a do (n) under Section 23 Act. Revenue suggest far to that colleagues go would so That is entitled section “Charitable his trade must be disallowed a merchant advertising Contributions”. Other authorizes the expenses he cannot because deduction such contributions in the case expenses brought in cus- show that those By an restricting individual. deductions cannot show because he tomers or this character individuals to act de- did arrive came under customers who ' corporations. nies them to I think that of, advertising his hypnotic influence merely Article was intended inter- independent exercise an and not (n) by pretive of Section 23 making clear light own of their self- judgment in the leayes sectiop inference, what ly, name- entirely agree I interest. that charitable similar donations “necessary” as the word used CLARK by corporations not are deductible as “helpful” be read as must in the act legislative lobbying expenses and that light considered the en- must be likewise not deductible as such or in the are taxpayer is engaged terprise in which article was not in- guise donations. is seeking interpretive result which it rather than the ex- to be business tended a,chieve. penses or to the deduction restrict case, expenditures may where, fairly be enforcement. in this deemed But provisions necessary expenses unambiguous, of busi- act power (a) specific, That its directions is no ness Section of the act. there by regulation. Congress to amend having is Arti- so borne out the fact that clearly specifically declared that not contain a cross-reference tax- cle does ing capital gain income arising to Article which does define business latter, disposed cost expense, “As of the asset of shall be the which states while income, Secretary 24 and measure deductible, items see Section not Treasury power by regulatory simi- 281-284,” not is without does contain a Article provision Fur- amendment Article 262. add in- cross-reference to lar points capital come shall thermore, out that derived from the asset Article itself by be used to deducted reduce cost.” to charities donations corporation business when Scavenger In Sunset Co. v. Commission- oper- purposes made connected er, 84 F.2d the Circuit of its business. Appeals ation for the Ninth Circuit had under consideration the effect interpretation adopted by given col my would, Regulations. Article me, render leagues it seems held Regulation that this legisla sweeping limited the invasion of the invalid article terms of entirely the statute power. 23(a) prohibiting the Revenue tive Section of lobbying expenses. deduction This of business authorizes deduction holding was based expenses provided only that are ordi conclusion that “the ambiguous statute is nary necessary. act is because Nowhere makes qualification no determination of what further ‘ordinary not an necessary’ lobbying must been incurred for not ex- pense.” “ordinary” But what is promotion legislation. Conse or the or “neces- sary” expense given business quently, clearly effect Article 262 of question is, of fact Regulations, colleagues my determined light construe, interpret implement an am business in which the engaged. provision general doubtful or do biguous, The words act, unambigu ambiguity merely create an but rather amend the call for the finding language (a) adding exercise the fact ous of Section function. To permit proviso lobbying ex it a Commissioner of Internal effect Reve- scope nue penses shall not be deducted limit these words must necessarily involve though they authorizing and neces him “to con- even sary in its business. settled the vert view of what the statute is a by regulation. question requiring be amended proof law thus of fact cannot into presumption Helvering, dispenses 298 U.S. Koshland v. S. clusive 756; proof precludes dispute,” A.L.R. Ct. to use the Equipment Co. v. Com Manhattan General words Mr. Sutherland Miller Justice States, missioner, 435, 440, 297 U.S. S.Ct. L. United U.S. S.Ct. supra, Helvering, 440, In Koshland v. Ed. 528. 79 L.Ed. 977. To continue in his (298 pages beyond said Roberts U.S. “This is Mr. words: administrative Justice page only authority conferred, 80 L.Ed. power. conferred, by 756): A.L.R. which could statute carry regulations pur- make out the is to ambiguous terms, the act uses “Where am, poses amend I of the act —not to it.” construction, clarifying doubtful is of therefore, persuaded by indicating or one the method regulation Scavenger Sunset Co. case the court specific application cases given 262 should be Article broad given great permissible but my colleagues construction prin- And the same the courts. weight by placed it. merely governs the statute ex- where ciple general rule and the Sec- invests presses a say authorized I am Treasury authority retary concurs this dissent. appropriate GOODRICH regulations to its promulgate

Case Details

Case Name: Commissioner of Internal Rev. v. Textile Mills S. Corp.

Court Name: Court of Appeals for the Third Circuit

Date Published: Dec 7, 1940

Citation: 117 F.2d 62

Docket Number: 7056

Court Abbreviation: 3rd Cir.