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Opinion of the Court.

In such a case it could be argued that the outlawed expenditures, by virtue of their illegality, were not "ordinary and necessary” business expenses within the meaning of § 23 (a)(1)(A).

In Textile Mills Corp. v. Commissioner, 314 U. S. 326, this Court accepted an interpretation of that section by a Treasury Regulation which disallowed the deduction of certain expenditures for lobbying purposes. In doing so, the Court referred to the fact that some types of lobbying expenditures had long been condemned by it, and that the interpretative regulation had itself been in effect many years with congressional acquiescence. The instant case does not come within that precedent.

In Commissioner v. Heininger, 320 U. S. 467, this Court was asked to go further and to disallow certain attorneys'

Corp. v. Commissioner, 175 F. 2d 711, 713-714 (where an overcharge under the Emergency Price Control Act was allowed to be deducted because it did not frustrate any “sharply defined policies” of the Act). As to deductibility of legal fees incident to the defense of a taxpayer against charges of illegal conduct, see Commissioner v. Heininger, 320 U. S. 467, s. C., 133 F. 2d 567; Kornhauser v. United States, 276 U. S. 145; Commissioner v. Longhorn Portland Cement Co., supra; 4 Mertens, Law of Federal Income Taxation, 384-389; and see generally, Note, 54 Harv. L. Rev. 852-860.

? The Government calls attention to its prosecution of certain other opticians in other states, in 1946, for violations of the Sherman Antitrust Act due to price-fixing agreements made with oculists in the course of interstate commerce. The consent decrees in those cases lend little support to the Government's contention that the payments made by petitioners in 1943 and 1944 in North Carolina and Virginia were not deductible. In fact, the recitals in those decrees tend to confirm the existence of a long-established, widespread, undisturbed practice of the kind described. United States v. Bausch & Lomb Optical Co., Civil Action No. 46C 1332; United States v. American Optical Co., Civil Action No. 46C 1333; United States v. House of VisionBelgard-Spero, Inc., Civil Action No. 48C 607; and United States v. Uhlemann Optical Co. of Illinois, Civil Action No. 48C 608 (all in U.S. D. C. N. D. Ill.).

Opinion of the Court.

343 U.S.

fees and other legal expenses. They were reasonable in amount and had been lawfully incurred by a licensed dentist (1) in resisting the issuance by the Postmaster General of a fraud order which would have destroyed the dentist's business and (2) in connection with subsequent proceedings on judicial review of the same controversy. While the services resulted in an injunction which stayed the order during the time that the taxable income in question was received, the final result of the litigation was unsuccessful for the taxpayer. Nevertheless, the expenditures were permitted to be deducted as ordinary and necessary expenses of the taxpayer's business. The opinion in that case reviews the position of the Bureau of Internal Revenue, the Board of Tax Appeals and the federal courts. Id., at 473–474. It refers to the narrowing of "the generally accepted meaning of the language used in § 23 (a) in order that tax deduction consequences might not frustrate sharply defined national or state policies proscribing particular types of conduct.” (Emphasis supplied.) Id., at 473. It concludes that the "language of $ 23 (a) contains no express reference to the lawful or unlawful character of the business expenses which are declared to be deductible. ... If the respondent's litigation expenses are to be denied deduction, it must be because allowance of the deduction would frustrate the sharply defined policies of 39 U. S. C. SS 259 and 732 which authorize the Postmaster General to issue fraud orders.Id., at 474. Neither that decision nor the rule suggested by it requires disallowance of petitioners' expenditures as deductions in the instant case.

Assuming for the sake of argument that, under some circumstances, business expenditures which are ordinary and necessary in the generally accepted meanings of those words may not be deductible as "ordinary and necessary” expenses under $ 23 (a)(1)(A) when they "frustrate sharply defined national or state policies proscribing par


Opinion of the Court.

ticular types of conduct," supra, nevertheless the expenditures now before us do not fall in that class. The policies frustrated must be national or state policies evidenced by some governmental declaration of them. In 1943 and 1944 there were no such declared public policies proscribing the payments which were made by petitioners to the doctors.

Customs and the actions of organized professional organizations have an appropriate place in determining in a factual sense what are ordinary and necessary expenses at a given time and place. For example, they materially affect competitive standards which determine whether certain expenditures are in fact ordinary and necessary. Evidence of them is admissible on that issue. They do not, however, in themselves constitute the "sharply defined national or state policies” the frustration of which may, as a matter of law, preclude the deductibility of an expense under $ 23 (a)(1)(A).

We voice no approval of the business ethics or public policy involved in the payments now before us. We recognize the province of legislatures to translate progressive standards of professional conduct into law and we note that legislation has been passed in recent years in North Carolina and other states outlawing the practice here considered. We recognize also the organized activities of the medical profession in dealing with the subject. A resulting abolition of the practice will reflect


$ Remington's Wash. Rev. Stat., 1949 Supp., $ 10185–14; Deering's Cal. Business and Professions Code, 1951, $$ 650, 652; N. C. Laws 1951, c. 1089, S$ 21, 23.

9 The present trend may lead to the complete abolition of the practice. If so, its abolition will have been accomplished largely by the direct action of those qualified to pass judgment on its justification. This gradually increasing opposition to the practice bears witness to the widespread existence of the practice in such recent times as 1943 and 1944. See Resolution of Section on Ophthalmology of

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itself in the tax returns of the parties without the retroactive hardship complained of here.10

The judgment of the Court of Appeals is reversed and the cause is remanded with directions to remand to the Tax Court with instructions to set aside its judgment insofar as it is inconsistent with this opinion.

It is so ordered.

MR. JUSTICE Douglas took no part in the consideration or decision of this case.

the American Medical Association adopted in June, 1924, but not then presented to the A. M. A. House of Delegates, quoted in 117 A. M. A. J. 498 (1941); Address of Chairman Albert C. Snell, M. D., before the Section on Ophthalmology, 117 A. M. A. J. 497–499 (1941); Principles of Medical Ethics of the American Medical Association (1943 and 1949); editorials in 131 A. M. A. J. 1128 (1946); 136 A. M. A. J. 176-177 (1948).

10 The payments made to the doctors in the instant case, and disallowed as deductions by the courts below, amounted to between 56% and 72% of petitioners' taxable business income. The income thus taxed had been transferred long ago to the doctors and they had paid their income tax on it.





No. 165. Argued November 28–29, 1951.—Decided March 10, 1952.

1. Appellants are taxicab drivers who transported passengers from

Mexico across an unincorporated area of San Diego County, California, to points not in the unincorporated area. They were convicted of driving taxicabs in an unincorporated area of the county without a permit from the sheriff required by a county ordinance. The ordinance required a written application for a permit, payment of a $1 fee, and compliance with certain standards relating to the public safety. Held: The ordinance as here applied was not invalid under the Commerce Clause of the Federal Constitution. Pp. 100104.

(a) The ordinance was not inconsistent with the Motor Carrier Act of 1935 or Interstate Commerce Commission regulations. Pp. 101-102.

(b) Nor was the ordinance an unreasonable burden on foreign commerce. Pp. 102-103. 2. The question of the constitutional validity of a provision of the

ordinance requiring a taxicab operator's license and payment of a

$50 fee therefor is not here presented. Pp. 103-104. 101 Cal. App. 2d 907, 226 P. 2d 87, affirmed.

Appellants' conviction of violating a county ordinance was affirmed by the Superior Court of California. 101 Cal. App. 2d 907, 226 P. 2d 87. On appeal to this Court, affirmed, p. 104.

Manuel Ruiz, Jr. argued the cause for appellants. With him on the brief was Morris Lavine.

. Duane J. Carnes argued the cause for appellee. With him on the brief were Edmund G. Brown, Attorney General of California, Clarence A. Linn, Assistant Attorney General, and Carroll H. Smith.

994084 0-52-11

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