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FEDERAL INCOME TAX STATUTE 1 (QUESTIONS SUGGESTED BY REPORTERS, May 19 & 20, 1950)

handle is hein.ali/aliftp0393 and id is 1 raw text is: QUESTIONS SUGGESTED BY REPORTERS FOR
INCOME TAX STATUTE DISCUSSION ON
FRIDAY AND SATURDAY,
MAY 19 AND 20, 1950
The following topics, in the form of questions, may assist in
focusing the discussion concerning Tentative Drafts Nos. 2 and 3
on the more important issues presented by these drafts.
I. DEDUCTIONS
1. Expenses
a. Ordinary and Necessary Requirement.
Issue: Should the requirement that business expenses be or-
dinary and necessary, in order to be deductible from gross in-
come, be eliminated?
Note: Present law requires, generally speaking, that only
those business expenses which are ordinary and necessary may
be deductible. Hence genuine expenses as distinguished from
gifts, distributions of profits, or capital expenditures may be dis-
allowed as deductions if found for some reason not to satisfy
such qualification. The draft removes this limitation  nd permits
all business expenses to be deductible despite any extraordinary
character. For example, under the draft salaries paid in the tax-
payer's business would be deductible even if abnormally high,
provided no element of gift or profit distribution to shareholders
is involved. See Tentative Draft No. 2, sections X150 (a) (1),
page 22, and X151 (a) (1), page 25; and comments B-2 (a),
pages 149 and 156,
b. Nonpersonal Expenses of Individuals.
Issue: Should individuals be permitted to deduct from gross
income all their expenses incurred or losses sustained which are
not personal, family, or living expenses or losses?
Note: Under present law an individual's expenses, to be
deductible, must affirmatively qualify as being in trade or business
or in the production of income. At the same time personal, fam-
ily, or living expenses are specifically disallowed as deductions.
There is, therefore, a possible gap between the area of specific
allowance and disallowance. The draft fills this hiatus by remov-
ing the affirmative qualifications and thereby extending the area
of permissible deductibility up to the boundaries of the area of
disallowance. Under the draft, for example, expenses incurred
by a nonprofessional trustee in the settlement of a suit for wrong-
ful administration of a trust would be deductible. As under

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