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WELCH V HELVERINGU.S. Supreme Court, 1933.290 U.S. 111FACTS Thomas Welch owned a grain brokerage business that went bankrupt in 1922. After receiving a job with the Kellogg Company, he started paying off the debts of the bankrupt company and tried to deduct these payments as business expenses from his income. The Commissioner of Internal Revenue decided that these payments were not deductible, with the Board of Tax Appeals and the Court of Appeals for the Eight Circuit affirming the decision. The case is at the Supreme Court on certiorari. ISSUEDoes the repayment of prior business debts classify as an ordinary and necessary business expense, thereby qualifying for a deduction on income taxes?DECISION No. The Supreme Court of the United States reaffirmed the lower court’s decision that Welch’s payments are not deductible as ordinary and necessary business expenses.REASON To qualify for a business deduction, a claim must be an “ordinary and necessary expense(s)paid or incurredduring thetaxable yearin carrying on anytrade or business (26 U.S. Code § 162(a)).” Justice Cardozo, in determining whether Welch’s expense was ordinary and necessary, stated “One struggles in vain for any verbal formula that will supply a ready touchstone. The standard set up by the statute is not a rule of law; it is rather a way of life. Life inall its fullness must supply the answer to the riddle.” Even though Cardozo found it difficult to determine, he decided that Welch’s payments are not an ordinary expense in the operation of a business. Welch may have found the expenses to be necessary for his business, but in the granderscheme, these expenses were by no means ordinary. Therefore, they do not classify as a deduction on income taxes. Although this fact did not decide the case, the Commissioner of Internal Revenue found Welch’s payments more akin to capital expenses because the payments were meant to fix his reputation (“Reputation and learning are akin to capital assets”).