Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30 (1958)

Tank Truck Rentals, Inc. v. Commissioner

No. 109

Argued January 29-30, 1958
Decided March 17, 1958
356 U.S. 30

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Syllabus

Fines imposed on, and paid by, the owners of tank trucks (and their drivers, who are reimbursed by the owners) for violations of state maximum weight laws are not deductible by the truck owners as "ordinary and necessary" business expenses under § 23(a)(1)(A) of the Internal Revenue Code of 1939, either (a) when commercial practicalities cause the truck owners to violate such state laws deliberately at the calculated risk of being detected and fined, or (b) when the violations are unintentional. Pp. 31-37.

(a) A finding that an expense is "necessary" cannot be made if allowance of the deduction would frustrate sharply defined national or state policies proscribing particular types of conduct, evidenced by some governmental declaration thereof. Pp. 33-34.

(b) The fines here concern the policy of several States, "evidenced" by penal statutes enacted to protect their highways from damage and to insure the safety of all persons using them. P. 34.

(c) Assessment of the fines here involved was punitive action, and not a mere toll for the use of the highways. Pp. 34, 36.

(d) In allowing deductions for income tax purposes, Congress did not intend to encourage business enterprises to violate the declared policy of a State. P. 35.

(e) The rule as to frustration of sharply defined national or state policies is not absolute. Each case turns on its own facts, and the test of nondeductibility is the severity and immediacy of the frustration resulting from allowance of the deduction. P. 35.

(f) To permit the deduction of fines and penalties imposed by a State for violations of its laws would frustrate state policy in severe and direct fashion by reducing the "sting" of the penalties. Pp. 35-36.

(g) Since the maximum weight statutes make no distinction between innocent and willful violators, state policy is as much thwarted in the case of unintentional violations as it is in the case of willful violations. Pp. 36-37.

242 F.2d 14 affirmed.