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74 Mich. L. Rev. 131 (1975-1976)
Judicial Public Policy Doctrine in Tax Litigation, The

handle is hein.journals/mlr74 and id is 149 raw text is: The Judicial Public Policy Doctrine in Tax Litigation For over fifty years, courts have employed the public policy doc- trine to disallow otherwise-permissible deductions from gross income in cases where upholding such deductions would frustrate a well-de- fined public policy.' For example, a ship-repair yard was denied section 162 deductions for kickbacks paid to officers of foreign vessels,2 and truckers were denied similar deductions for fines paid as a result of violating state maximum-weight laws.3 The doctrine, which is based on a presumption against congressional intent to en- courage violations of declared public policy,4 thus operates to imple- ment substantive policies unrelated to revenue collection. While the doctrine has been applied primarily to section 162 deductions for ex- penses incurred in a trade or business,5 courts have employed it to disallow deductions under a number of other Internal Revenue Code sections as well.6 Although the basic concept of this judicial doctrine is not com- plex, courts have had difficulty applying it to specific fact situations and thus have done so inconsistently.7 As part of the Tax Reform Act of 1969,8 Congress amended section 162 to deny business-ex- pense deductions for fines and similar penalties, certain bribes and kickbacks, and two thirds of certain antitrust damage payments.9 In 1. See, e.g., Sarah Backer, 1 B.T.A. 214 (1924). See also Ellett & Rubinstein, Disallowed Deductions: 1969 Tax Reform Act Changes to Code Sec. 162, 48 TAXES 457, at 457 n.1 (1970); Gordon, The Public Policy Limitation on Deductions from Gross Income: A Conceptual Analysis, 43 IND. L.J. 406, 414 n.45 (1968); Taggart, Fines, Penalties, Bribes, and Damage Payments and Recoveries, 25 TAX L. REV. 611, 614 n.2 (1970). 2. Dixie Mach. Welding & Metal Works, Inc. v. United States, 315 F.2d 439 (5th Cir. 1963). 3. Hoover Motor Express Co. v. United States, 356 U.S. 38 (1958) (involuntary violations); Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30 (1958) (volun- tary and involuntary violations). 4. See, e.g., Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30, 35 (1958). 5. Note, Business Expenses, Disallowance, and Public Policy: Some Problems of Sanctioning with the Internal Revenue Code, 72 YALE L.J. 108, at 108 n.1 (1962). 6. See, e.g., Fuller v. Commissioner, 213 F.2d 102 (10th Cir. 1954) (section 165 loss on destruction of illegal whiskey); Benjamin T. Smith, 34 T.C. 1100 (1960), affd. per curiam, 294 F.2d 957 (5th Cir. 1961) (section 165 loss or section 166 bad debt deduction for IRS penalty); Luther M. Richey, Jr., 33 T.C. 272 (1959) (section 165 theft loss resulting from counterfeiting scheme); Leon Turipseed, 27 T.C. 758 (1957) (section 151 dependency exemption for woman illegally cohabitating with taxpayer). 7. Compare Edwards v. Bromberg, 232 F.2d 107 (5th Cir. 1956), with Luther M. Richey, Jr., 33 T.C. 272 (1959). See Raymond Mazzei, 61 T.C. 497, 506 (1974) (Sterrett, J., dissenting). 8. Pub. L. No. 91-172, 83 Stat. 487. 9. Tax Reform Act of 1969, Pub. L. No. 91-172, § 902, 83 Stat. 710-11, amend-

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