Surasky v. United States

Brief Fact Summary. Taxpayer purchased 4000 shares of common stock in Montgomery Ward. He and other stockholders were concerned with the direction of the company and formed a committee to advocate for change. Taxpayer spent $17,000 in support of the committee’s activities.

Synopsis of Rule of Law. Ordinary and necessary business expenses for the management, conservation, or maintenance of property held for the production of income may be deductible.

Facts. Taxpayer purchased 4000 shares of stock of Montgomery Ward in 1954 and 1955 costing $296,870. Taxpayer and other stockholders formed a Committee known as the Wolfson-Montgomery Ward Stockholders Committee in order to advocate changes in the management of Montgomery Ward. Taxpayer paid the committee $17,000 in 1955 for expenses in carrying out its mission. Three of the committee’s nominees were place on the board of nine directors. The Chairman of the Board and the President resigned which was a goal of the committee. Taxpayer received dividends of $30,000 on the stock and after he sold his stock he realized a capital gain of $50,929. Taxpayer was not allowed to deduct the expenditures on the committee as an ordinary and necessary business expense.

Issue. Is the expense allowable as a business deduction?

Held. Chief Judge Tuttle issued the opinion for the United States Fifth Circuit Court of Appeals in reversing the lower court and holding the expenditure is deductible.

Discussion. Taxpayer made the payments anticipating that profit would result. Further, there was success from the work of the committee. Taxpayer was clearly expending money in order to protect his business investment.