Surasky v. United States
325 F.2d 191 (5th Cir. 1963)

  • Surasky was a shareholder in Montgomery Ward. He attempted to get a new Board of Trustees elected. This involved a 'proxy campaign' to convince the other shareholders to vote for Surasky's candidates.
    • That campaign cost Surasky $17k.
  • When he filed his taxes, Surasky claimed a $17k deduction as an expense related to the production of income.
    • 26 U.S.C. 212 allows for deductions related to the production and collection of income.
  • The IRS denied the deduction. Surasky appealed.
  • The Trial Court found for the IRS. Surasky appealed.
    • The Trial Court found that there wasn't a strong connection between the proxy campaign and production of income for Surasky. Therefore, the expenses were not deductible.
      • There was no guarantee that the new Board would actually make the price of Surasky's stock rise.
  • The Appellate Court reversed and allowed the deduction.
    • The Appellate Court found that even if the gain was speculative, the expenses were still deductible under 212.
      • The Court noted that nothing in 212 required a proximate relationship between the expenses and the potential production of income.
  • This decision was a bit of a departure from the language implied in Welch v. Helvering (290 U.S. 111 (1933)), which implied that there was some objective standard to what was ordinary and necessary.