Afterword

• Pages: 491-495
• Author: Marvin A. Chirelstein,Lawrence Zelenak

491

AFTERWORD

If the reader has the strength to look back at the materials

discussed in this book, he or she might become aware that there are

three major systemic problems—problems fundamental to the

income tax as a whole—which the Code, the cases, and the Internal

Revenue Service are obliged to confront at many points. Seeing this

may help some students to organize the materials mo re easily and

perhaps resist confusion.

The first such problem is obvious; the second pretty much so; the

third is sometimes hidden and a bit harder to observe. We exaggerate

only slightly when we assert that most, if not quite all, of the

interpretative issues that arise under the particular Code provisions

that have been examined—though they may seem scattered and

diverse—can actually be subsumed under one or another of the

systemic problems to which we now refer.

Systemic Problem #1: Business or Personal. The distinction

between business-related expenditures and expenditures that are

“personal, living, or family expenses” is vital in calculating an

individual’s taxable income. But as the reader knows by th is time,

there is no easy formulaic device that will enable one to make the

necessary distinction, chiefly, we suppose, because individuals are

free to characterize their activities in a self-serving way and because

a person may in fact be engaged in business and p ersonal activities

at one and the same time. The so-called business lunch is an obvious

example.

If one goes back to such cases as Pevsner, Hantzis, and the

Cardozo decision in Welch v. Helvering, one is pretty much forced to

conclude that distinguishing “business” from “personal” can never be

done in a wholly convincing way and never with complete finality.

The courts of appeals decided the first two cases for the government,

but both decisions were reversals of the Tax Court, a majority of

whose putative tax experts actually found for the taxpayers. In Welch

the great judge simply couldn ’t help treating the taxpayer’s

expenditures as falling into both categories at once, being “necessary

for the development of the [taxpayer’s] business” but also akin to the

restoration of “a family name that is clo uded by thefts committed by

an ancestor.” The Welch opinion is generally regarded as a muddle,

yet there may be some truth to the notion that the taxpayer’s motives

in repaying the creditors of his bankrupt predecessor (a family

business started by “an ancestor,” i.e., his father) were indeed of two

sorts.