This is a controversy concerning a deficiency in petitioner's income tax for 1939.
In December 1938, the Governor of Pennsylvania appointed petitioner to serve an unexpired term as Judge of the Court of Common Pleas of Luzerne County. Under Pennsylvania law such an interim judgeship is filled for a full term at the next election. McDonald accepted this temporary appointment with the understanding that he would contest both the primary and general elections. To obtain the support of his party organization he was obliged to pay to the party fund an 'assessment' made by the party's executive committee against all of the party's candidates. The amounts of such 'assessments' were fixed on the basis of the total prospective salaries to be received from the various offices. The salary of a common pleas judge was $12,000 a year for a term of ten years, and the 'assessment' against petitioner was fixed at $8,000. The proceeds from these 'assessments' went to the general campaign fund in the service of the party's entire ticket. In addition to this political levy, McDonald also spent $5,017.27 for customary campaign expenses-advertising, printing, travelling, etc. The sum of these outlays, $13,017.27, McDonald deducted as a 'reelection expense'. The Commissioner of Internal Revenue disallowed the item and notified him of a deficiency of $2,506.77.
In appropriate proceedings before the Tax Court of the United States that Court sustained the Commissioner, 1 T.C. 738, and its decision was affirmed by the Circuit Court of Appeals for the Third Circuit. 139 F.2d 400. We brought the case here, 321 U.S. 762, 64 S.Ct. 938, to give a definitive judicial answer to an important problem in the administration of the federal income tax.
What class of outlays may, in relation to the federal income tax, be deducted from gross income and in what amount are matters solely for Congress. Our only problem is to ascertain what provisions Congress has made regarding such expenditures as those for which the petitioner claims the right of deduction. The case is not embarrassed by any entanglement with corrupt practices legislation either state or federal.
The materials from which must be distilled the will of Congress are the following provisions of the Internal Revenue Code: § 23(a)(1)(A), 56 Stat. 798, 819, 26 U.S.C. § 23(a)(1)(A) (Supp. 1943), 26 U.S.C.A.Int.Rev.Code, § 23(a)(1) (A), in connection with § 24(a)(1), 26 U.S.C. § 24(a)(1), 26 U.S.C.A.Int.Rev.Code, § 24(a)(1), and § 48(d), 26 U.S.C. § 48(d), 26 U.S.C.A.Int.Rev.Code, § 48(d); § 23(e)(2), 26 U.S.C. § 23(e)(2), 26 U.S.C.A.Int.Rev.Code, § 23(e)(2); § 23(a)(2), as amended by § 121 of the Revenue Act of 1942, 56 Stat. 798, 819, 26 U.S.C.A.Int.Rev.Code, § 23(a)(2).
'All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business' are allowed by § 23(a)(1)(A) as deductions in computing net income. According to tax law terminology (§ 48(d) of the Internal Revenue Code) the performance by petitioner of his judicial office constituted carrying on a 'trade or business' within the terms of § 23 of the Internal Revenue Code. He was therefore entitled to deduct from his gross income all the 'ordinary and necessary expenses' paid during 1939 in carrying on that 'trade or business.' He could, that is, deduct all expenses that related to the discharge of his functions as a judge. But his campaign contributions were not expenses incurred in being a judge but in trying to be a judge for the next ten years. That is as true of the money he spent more immediately for his own reelection as it is of the 'assessment' he paid into the party coffers for the success of his party's ticket. The incongruity of allowing such contributions as expenses incidental to the means of earning income as a judge is underlined by the insistence that payment of the 'assessment' levied by the party as a prerequisite to being allowed to be a candidate is deductible as a 'business' expense. If such 'assessments' for future acquisition of a profitable office are part of the expenses in performing the functions of that office for the taxable year, then why should not the same deduction be allowed for 'assessment' against office holders not candidates for immediate reappointment or reelection but who pay such 'assessments' out of party allegiance mixed or unmixed by a lively sense of future favors?