Case Brief
Citation
Welch v. Helvering, 12 AFTR 1456 (USSC, 1933). WELCH v HELVERING, 12 AFTR 1456, 290 US 111, 3 USTC ¶1164 (US, 11/6/1933). WELCH, THOMAS H., 25 BTA 117
Facts:
Thomas Welch worked for the E.L Welch Company in the grain business. The Welch Company proceeded to go bankrupt and Thomas Welch went on to work for the Kellogg Company to purchase grain for them on commission. Thomas Welch decided to pay off the debts of the Welch Company so that he could improve his credit and reputation as well as better his relations with his former customers that he wished to do business with at the Kellogg Company. He made large payments on these debts from 1924 to 1928 of about $47,207.86 when he had mad commissions of $130,595.89. He then …show more content…
This is because the facts and circumstances differed in the two situations. It is also very hard to apply a consistent rule across all cases because of the facts and circumstances. Each case is unique. I will now explore how two different conclusions were reached in the similar cases of Welch and Harold Jenkins.
The Supreme Court found that the payments that Welch paid to creditors of a bankrupt business that he was formerly the secretary for, were not deductible as an ordinary and necessary business expense. Rather, the court found that these expenditures were akin to capital expenditures of his new business. These payments were found to be extraordinary in nature because similar businesses do not improve their credit and goodwill through such …show more content…
The Lohkre case created the precedent that deductions will be allowed for “expenditures made by a taxpayer to protect or promote his own business even if the transaction originated with another person and that the resulting expenditures would have been deductible by that other person if payment had been made by him”. There is an argument that there is a stronger relationship between Jenkins payments and his business of a country music singer than the relationship between Welch’s payment and his business of buying grain. This argument would be consistent with how the courts came to different conclusions on the two
Citation
Welch v. Helvering, 12 AFTR 1456 (USSC, 1933). WELCH v HELVERING, 12 AFTR 1456, 290 US 111, 3 USTC ¶1164 (US, 11/6/1933). WELCH, THOMAS H., 25 BTA 117
Facts:
Thomas Welch worked for the E.L Welch Company in the grain business. The Welch Company proceeded to go bankrupt and Thomas Welch went on to work for the Kellogg Company to purchase grain for them on commission. Thomas Welch decided to pay off the debts of the Welch Company so that he could improve his credit and reputation as well as better his relations with his former customers that he wished to do business with at the Kellogg Company. He made large payments on these debts from 1924 to 1928 of about $47,207.86 when he had mad commissions of $130,595.89. He then …show more content…
This is because the facts and circumstances differed in the two situations. It is also very hard to apply a consistent rule across all cases because of the facts and circumstances. Each case is unique. I will now explore how two different conclusions were reached in the similar cases of Welch and Harold Jenkins.
The Supreme Court found that the payments that Welch paid to creditors of a bankrupt business that he was formerly the secretary for, were not deductible as an ordinary and necessary business expense. Rather, the court found that these expenditures were akin to capital expenditures of his new business. These payments were found to be extraordinary in nature because similar businesses do not improve their credit and goodwill through such …show more content…
The Lohkre case created the precedent that deductions will be allowed for “expenditures made by a taxpayer to protect or promote his own business even if the transaction originated with another person and that the resulting expenditures would have been deductible by that other person if payment had been made by him”. There is an argument that there is a stronger relationship between Jenkins payments and his business of a country music singer than the relationship between Welch’s payment and his business of buying grain. This argument would be consistent with how the courts came to different conclusions on the two