Taxation – Ordinary and Necessary Expenses – Deduction of Advertising Expenses Incurred to Defeat State Initiative Measures

Petitioners were members of a partnership engaged in the wholesale distribution of beer in Washington. In 1948 the partnership made contributions to a publicity campaign instituted to defeat an initiative to be presented to the voting public, the passage of which would have placed retail beer and wine sales exclusively in state hands. In their 1948 tax returns petitioners deducted the amount contributed as ordinary and necessary business expense. After the Commissioner disallowed the deduction the petitioners paid the deficiency under protest and sued for a refund in the district court. That court denied the refund, ruling that the payments were expended for the defeat of legislation within the meaning of an existing treasury regulation which prohibited deduction of such expenditures as ordinary and necessary business expense under section 23 (a) (1) (A) of the 1939 Internal Revenue Code. The court of appeals affirmed. On certiorari to the United States Supreme Court, held, affirmed. The pertinent regulation is designed to implement the sound public policy of keeping the Treasury out of political controversies and has acquired the force of law due to (1) reenactment without change of the code provision which the regulation interprets and (2) consistent rulings by the courts disallowing such deductions in accordance with the regulation. Cammarano v. United States, 358 U.S. 498 (1959).