CAMMARANO v. UNITED STATES

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Argument of Frederick Bernays Wiener

Chief Justice Earl Warren: Number 29, William B. Cammarano and Louise Cammarano, Petitioners, versus United States of America.

Colonel Wiener, you may proceed.

Mr. Frederick Bernays Wiener: If the Court please, the issue in this case is whether expenditures made by taxpayers to save an existing business from destruction ceased to be deductible as ordinary and necessary business expenses because incurred in an effort to convey arguments to the taxpayers' fellow citizens to persuade them to vote against an initiative measure which would've destroyed their business.

The facts are very simple.

Petitioners husband and wife on a partnership interest in the firm of beer wholesalers in the State of Washington.

In 1948, there was submitted to the voters of that State under the initiative provisions of its Constitution, an initiative measure which proposed to close all retail beer outlets and to place all retail sales of beer in state hands just as hard liquor had been under state control since repealed.

Now, this measure closing all retail stores permitting retail sales of beer only by the State would've reduced the number of retail establishments in the State to one, to wit, the State of Washington and would've put all or nearly all of the beer supposed sellers out of business.

So in order to defend themselves against this imminently threatened destruction of their livelihood, petitioners' expended money together with other similarly situated to persuade their fellow citizens to vote against this initiative.

These arguments were presented in the form of radio broadcasts, newspaper advertising, streetcar cards and the like.

They were successful.

The initiative was defeated.

They stayed in business and on their tax return for that year, they took as a deduction as an ordinary and necessary business expense the amount of money attributable to their interest in the partnership that had been expended for these purposes.

Justice William O. Douglas: Were they retailers or wholesalers?

Mr. Frederick Bernays Wiener: They were wholesalers.

They were wholesalers.

Justice William O. Douglas: And the initiative would have --

Mr. Frederick Bernays Wiener: Closed the retail stores and made the State of Washington the only retail salesman in the State.

The deduction was disallowed and this action was brought to recover the payment under -- made under protest, judgment went for the United States in the District Court.

It was affirmed by the Court of Appeals in the Ninth Circuit and it's here on certiorari.

Justice Felix Frankfurter: Could -- could the State itself not have participated going into the venture of business but if not have bought from these wholesalers?

Mr. Frederick Bernays Wiener: Yes, it could have bought from one but the testimony in the record was that with only one retailer in the State, 90% of the existing wholesalers would have been out of business.

Justice Felix Frankfurter: Instead, they could have bought only from one and that's what, the statute?

Mr. Frederick Bernays Wiener: No, because only the State of Washington was the -- the State of Washington would be --

Justice Felix Frankfurter: Well, there would've been only one retailer.

Mr. Frederick Bernays Wiener: That's correct.

Justice Felix Frankfurter: Yes.

Mr. Frederick Bernays Wiener: Yes.

Justice Felix Frankfurter: But -- but the consumptive capacity of the citizens of Washington (Voice Overlap) --

Mr. Frederick Bernays Wiener: Would not -- would not have been impaired but -- but the one retailer would -- would have kept in business only about 10% of the wholesalers.

In other words, these people faced a 90% chance of the extinction of their business.

Now, in the District Court, the -- the judge said, “It isn't clear to me how the destruct -- the closing of retail stores affects wholesale business.”

And the Court of Appeals ceased on this as an alternative ground for affirmance, where we showed in our brief at some length, I'm afraid we labored the point pretty hard that of course if you close the retail stores, the wholesalers are out of business and the Government doesn't make any attempt here to support that alternative holding.

So, we're all in accord that there was at least a 90% chance over this --

Justice Felix Frankfurter: How does (Inaudible) judge said that?

Mr. Frederick Bernays Wiener: I am not familiar with Judge Boggs' views on the subject of -- even light wines or beer.

I don't know.

He may have been confused by the fact that there were two different words and he didn't think about it.

At any rate, there is no attempt made here by the Government to support the alternative holding.

So that we're all here in agreement on the fact that this had a 90% chance of destroying these taxpayers' business and we think that is the most important single fact in the entire case, that what they were fighting would have put them out of business.

And reflexly, reflexly, the Government agrees with us because in the entire 50 pages of their brief, there is no reference to the business effect of this initiative on petitioner's business.

Read -- reading the Government's brief, you would suppose that petitioner's were wholesale florists who like to go to the tavern and drink beer with the nature lovers and talk about motion, all the stuff -- a nasty backbreaking stuff you can have in a garden.

But this had a business effect and that's what the Government doesn't admit.

Now the leading case, the leading case here on the proposition that it is an ordinary and necessary business expense to expend money to save one's business from destruction is of course Commissioner against Heininger in the 320th United States, and we think that is the leading case and we discussed it at some length.

And again, the Government reflexly agrees with us because they don't state the Heininger case, they don't discuss it, they cite it twice as a compare and wants us to see also.

Now, this being a measure that threatened the taxpayer's business which we think as a matter of law involved in expenditures that's ordinary and necessary, what is there to support the result below?

Well, there's a regulation.

There is a three-throng regulation and I will take each of the throngs in order.

First, it says that some spent for lobby may not be deducted.

Well, we don't quarrel with that at all.

Lobbying in the sense of the use of personal influence on and personal solicitation of members of a legislature is so far against public policy that a contract for it is unenforceable and it's been held here over many years.

And of course in the Textile Mills case in the 314th United States, that regulation was sustained.

Now we say, the decision goes on the unenforceability, on the -- the -- of lobbying.

The fact that lobbying is against public policy on the illegality of the practice because the opinions speaks of insidious influences and legislative halls and that family of contracts to which the law has given those sanction.

And of course if it's unenforceable, it's illegal and we don't borrow of course with the regulation that says that kind of an expenditure is not ordinary and necessary.

But, when the regulation goes on to condemn some spent for the promotion or defeat of legislation not involving lobbying, then we have something else.

We have a two-fold argument on that branch of the regulation.

We say first, it's invalid and second, that if it's thought to be applied to an initiative provision, it would raise a serious constitutional question.

Chief Justice Earl Warren: And before you -- you proceed farther, may I ask if the regulation implies that it would be illegal for your clients to spend money on this cause or does it just say that the -- the expenditures are not deductible?

Mr. Frederick Bernays Wiener: It says the expenditures are not deductible and we say the only way you can properly deny an expenditure which in every other way qualifies within the statute is because of the semblance of the illegality, the Textile Mills lobby, the Tank Truck Rentals penalty, but -- but that to say that simply because the activity concerns legislation, it is not ordinary and necessary we think is arbitrary.

It -- it say -- it carves out, attempts to carve out one particular type of expenditure without any reasonable ground for differentiation.

Now --

Chief Justice Earl Warren: May -- may I -- may I ask this and that do you make any -- any differentiation between affecting a man's business and affect -- affecting his personal rights let us say.

Or do you -- do you contend that any expenditure by anybody in a -- in an initiative election should be deducted.

Mr. Frederick Bernays Wiener: No, no, Your Honor.

Chief Justice Earl Warren: And I'd like to know the distinction between the two.

Mr. Frederick Bernays Wiener: We make only the -- we make only the point that a -- an expenditure and -- and I will narrow -- narrow my arguments to the sole ground that is necessary here.

That an expenditure made by a taxpayer to save his business from destruction does not cease which is otherwise deductible under the rule of the Heininger case.

It doesn't lose its deductibility when he is engaged in a legitimate over an open effort to defeat legislation which would have destroyed that business.

And the reason is this, we say quite briefly, legislation isn't a dirty word.

Now contacts for lobbying are unenforceable but if I am retained by a client to appear before Committees and procure the passage of legislations even if I have that contract on a contingent basis, that contract is enforceable, that contract is valid and this Court has upheld those contracts so that there is nothing reprehensible about legislative activity as such.

There is no taint and to exclude legitimate legislative activity from the reach of the statute is just as arbitrary as the attempt in being on distrust which was the nonbusiness expense of attempting to preserve property and the Commissioner had said, “Yes.

You can deduct all the expenses incurred in protecting your property except -- except in expenses incurred in fighting an additional tax assessment which we put upon you.”

That's wrong.

Well of course, the Court held that invalid because it was contrary to the statute and we say the same thing is here as long you don't have lobby.

Now, a fortiori when you get -- and this is the second thought -- second branch of our argument under that clause of the regulation when you get to legislation pending not before a legislature but before the people, then you have something entirely different.

And I recall, to Your Honors' minds the -- the tremendous struggle in the last -- last years -- the last century and then the early years of this century to introduce under the constitutions of so many States' provisions for initiative and referendum.

And the purpose was -- the purpose was to free the people from the frailties of their legislators, to make it possible for the people to legislate directly, and to make it impossible for particular interests to buckle up measures in a legislature through pressure directed against a very few people so that --

Justice Felix Frankfurter: Of these -- one of the advertisements constitutionally protected is a form of free speech?

Mr. Frederick Bernays Wiener: Well, a great --

Justice Felix Frankfurter: Could it be a point -- could -- could an individual citizen putting to one side the corporations, could a citizen be prohibited from getting a full page ad as to endorse (Inaudible) why a private enterprise is better than public entitlements?

Mr. Frederick Bernays Wiener: No.

Of -- of course not.

But the line we've drawn and the -- and I will answer the question now.

The line we draw is the business advertising.

Now, if as I say, if my clients had been wholesale florists who like to go to the tavern, they couldn't claim this as a business expense.

The regulation, the very same regulation which allows trade advertising as a business expense denies the deduction of a non-trade advertising and I don't quarrel with that.

I mean, the non-trade advertising isn't a business expense.

But what we're dealing with here is the business expense of something to save the business from destruction.

And when you have the -- when you're dealing with an initiative, I say unless you're prepared to say that this great struggle in the early years of this century was the term ballot, then there is a -- a marked difference between legislation pending in the legislature and legislation pending before the entire direct and that to -- to say as the Government does that here, “Oh, well the people were the legislators is to -- could realize a basic distinction and to resort to the techniques of the late Kurt Goldstein.”

Justice Charles E. Whittaker: (Inaudible)

Mr. Frederick Bernays Wiener: Yes sir.

That is -- Your Honor has quoted from 23 (o) which is the contribution section.

We are claiming under 23 (a) the business expense section.

There are three basic differences.

The business expense deals with the activity of the taxpayer.

The contribution section deals with the activity of the person to whom the payment is made.

The two subjects are entirely different.

And finally, there is a percentage limitation in 23 (o) on the amount of contributions that can be taken as a deduction and there is no such percentage contribution in 23 (a) and we say it is just as wrong to try to write the -- the substantive limitation of 23 (o) into 23 (a) as it would be to write to -- to attempt to write the percentage limitation of 23 (o) into 23 (a).

Now for instance, if I am a Rockefeller, Rockefeller , I cannot give 60% of my gross income to worthy charitable causes such as foundations, colleges, churches and the like.

There's a limitation in percentage.

But if I am an unsuccessful businessman with a poorly developed acquisitive instinct and 60% of my gross goes for expenses, not even the Commissioner of Internal Revenue will say, (Inaudible) if they're otherwise proper expenditures.

Justice Charles E. Whittaker: (Inaudible)

Mr. Frederick Bernays Wiener: Exactly.

And I say that -- that the Commissioner can no more write the percentage limitation of subsection O into subsection A than he can write the substantive limitations on contributions into a business expenses that are otherwise ordinary and necessary.

Justice Charles E. Whittaker: That also comes to due processes?

Mr. Frederick Bernays Wiener: We don't have a due process, sir.

Justice Charles E. Whittaker: (Inaudible)

Mr. Frederick Bernays Wiener: No, no.

I think the regulation is invalid because it's not warranted by the statute.

It's not authorized by the statute.

The -- the statute says ordinary and necessary and although, that -- those aren't words of art.

But we do know that ordinary and necessary includes expenditures necessary to save one's business even if that business is as doubtful as the business of Dr. Heininger who was not only guilty of inaccurate statements to pass through the mails but also a very incompetent damage.

Now, that --

Justice Charles E. Whittaker: (Inaudible)

Mr. Frederick Bernays Wiener: It was the attorney's fee to try to keep Heininger in business.

He was facing a postal fraud order and if Your Honor will read the report of Heininger against Farley in the 105 F.2d, you will see that the postal authorities had ample grounds for shutting him down.

And then he was permitted to deduct his attorney's fee and the Court said, “Well, his business was about to be destroyed.

The normal response to that threat was to try to save his business.

The attorney's fee being otherwise reasonable, he can deduct it even though in fact he was put out of business.”

Now, this was just as much a threat to our business as Postmaster General Farley was to Dr. Heininger's business and there's nothing -- there was nothing wrong about our business.

Our business was lawful.

Justice Charles E. Whittaker: Where efforts to influence legislations were involved in one and not the other.

Mr. Frederick Bernays Wiener: Well I know, but -- but on the -- there is nothing in the business expense section that says efforts to influence legislation and my point is that if the expenditure is otherwise ordinary and necessary, you can't single it out on the ground that it involved efforts to influence legislation unless those efforts transgress the lines of public policies so that they became efforts of lobbying and hands on enforcement.

And -- and that -- that's our position that the regulation is invalid as applied to legitimate efforts in the legislature but a fortiori, it is invalid as applied to attempts to -- where the legislation is pending before the people and where the taxpayers are bringing there if effort is to saturate the thinking of the community and not simply to deal with the legislature.

In other words, we have a form of direct legislation.

Now in the case of Luther Ely Smith which I think is worth more than passing mention.

Justice Charles E. Whittaker: That's a Tax Court case.

Mr. Frederick Bernays Wiener: That is a Tax Court case.

Luther Ely Smith was a Missouri lawyer who thought rightly or not, I cannot say that the public had lost confidence in the courts and --

Justice Charles E. Whittaker: And you're talking about our Missouri (Inaudible)

Mr. Frederick Bernays Wiener: Exactly.

And he spent money to adopt that constitutional amendment and the Tax Court said that this regulation was inapplicable, no action by the legislature was necessary.

The Commissioner acquiesced and that acquiescence remained enforced for 14 years until Your Honors granted certiorari in this case and then the Commissioner did a hasty post like -- most enlightened flip-flop and said, “Oh well, the constitutional amendment is general legislation and therefore the legislature replied.”

But we say, if you can address communications relating to the taxpayer's business to the public to say drink lots of beer or drink Acme beer or drink any other kind of Krispy Kreme thirst-quencher and that is the proper business expense then to say that when you address a -- an appeal to them to vote against this initiative which would put us out of business, that would raise the question which was pointed out in Speiser versus Randall, that there's a discrimination among identical types of speech and that certainly would raise the constitutional question.

We say the only way to avoid raising that question is to construe this legislation if we get to the second stage of the argument as not as meaning legislation before a legislature which is the normal sense and not legislation before the people.

Chief Justice Earl Warren: Colonel, do you -- you make -- you stress the fact that this would put your clients out of business.

Would your argument be different if it only affected them in a slight degree?

Mr. Frederick Bernays Wiener: That would be a difference of degree eventually and the question of fact.

Now --

Chief Justice Earl Warren: Now, who would decide -- now, if it's a different question of fact, who would decide --

Mr. Frederick Bernays Wiener: Well --

Chief Justice Earl Warren: -- how seriously a man's business rights would be affected --

Mr. Frederick Bernays Wiener: I suppose --

Chief Justice Earl Warren: -- for the purpose of deduction of taxes?

Mr. Frederick Bernays Wiener: I suppose in the first instance, it would be the Commissioner and then the Tax Court and then ultimately this Court.

Although I would find it difficult to make a -- get a fact question here on certiorari certainly after the decision of 10 days ago.

But it would be a question of fact as to the business effect.

I recur to my wholesale florist, the wholesale florist couldn't claim this.

The wholesale grocer might because after all without the -- in the State of Washington the wholesale -- the grocer can sell beer.

The manufacturer of tavern equipment I think could raise.

It would be a question of degree how far it affects business, but we don't have to decide any of those questions on where to draw the line or how far in this direction, how far in that direction because here we have something clear.

This would've destroyed their business or at least there was a 90% chance that they would have been among the wholesalers who would've been closed down.

Now, finally there is the clause of the regulation that deals with propaganda.

There are technical object -- obstacles in the way of that govern -- argument on the part of the Government which are fully discussed in the brief.

I think it's foreclosed by the plaintiffs and I won't -- I'll rest on my brief there.

But let me briefly deal with the question of propaganda.

I don't think it adds anything except an epithet because after all what is propaganda?

In a sense, any appeal to the people can be labeled propaganda.

I've once worked for a cabinet officer since deceased who had a very simple life, anything in his -- his arguments were based on facts and his opponents' arguments were purely propaganda.

Unknown Speaker: (Inaudible)

Mr. Frederick Bernays Wiener: Yes.

I think there's a -- in the companion case, they quote Judge Learned Hand in the Slee case, 42 F.2d propaganda being a polemic to denote the publicity of the other side.

I think -- I think the other propaganda, the other fellow's arguments because ultimately, any kind of appeal to the people and that is what an argument addressed to the people in connection with an initiative is.

Any argument addressed to the people in -- in a census propaganda, the Declaration of Independence, the Federalist, the Emancipation Proclamation, any attempt to persuade, if you happen not to like the -- the context of it is propaganda.

But what we have here is business propaganda.

Business propaganda that is quite like any other kind of advertising because this wasn't a -- an argument against the initiative brought by the rugged individualist who didn't want the -- the State of Washington in the retail beer business.

This was a -- a campaign by the people who would have been placed out of business.

And there again, the difficulty with the Government's arguments is not only that they appear to denigrate the very essence of popular Government but throughout, consistently and not accidentally, they are ignoring or seeking to ignore the basic business aspect of the taxpayer's appeal to their fellow citizens to vote down this measure which would have destroyed their business.

And that's why we think that the judgment below was erroneous and should be reversed.

Justice William O. Douglas: When did this spray, the exploiting exportation propaganda get into regulation?

Mr. Frederick Bernays Wiener: Oh, I think it's in -- in one sense, Mr. Justice it goes back great many, many years.

And insofar as it is applied to -- in the -- to -- in the contribution section, I -- we don't quarrel with it.

I mean, it's one thing if you can contribute to the national committee.

It's different from contributing to -- to Georgetown University Law School.

And -- and when the -- when Congress says it's got to be an educational, charitable, and so forth the institution, I'm not troubled by the regulation which says this excludes propaganda.

But this has -- as a matter of fact, the corporate regulation has never been under business expenses except for one year since 1915 and the regulation, the -- against propaganda hasn't been in the individual taxpayers' regulations until 1938.

And the -- it's -- the individual regulation has always been under contributions.

Justice Felix Frankfurter: You talked a little out of this -- this interest with the devotion into biology, put in a front -- full-page ad in The New York Times saying that he wants to reserve this foolish notions that smoking is deleterious, prevention as to instability.

That would not be propaganda, but if he doesn't as an expert with a tobacco interest, it would be.

Mr. Frederick Bernays Wiener: I suppose that's about the only line possible.

And -- and -- and yet --

Justice Felix Frankfurter: You mean disinterestedness.

Mr. Frederick Bernays Wiener: No, I don't think it's disinterestedness.

They -- the -- the very core of this case is the -- is the deep and sharp interest that the petitioners had in the preservation of their business.

Justice Felix Frankfurter: I was suggesting the little hypothesis to show on satisfaction, the notion of what is and what isn't propaganda.

Mr. Frederick Bernays Wiener: Well if -- it's utterly unsatisfactory.

It's utterly -- it doesn't add anything except an epithet.

Chief Justice Earl Warren: Mr. Davis.

Argument of Oscar H. Davis

Mr. Oscar H. Davis: Mr. Chief Justice, may it please the Court.

This is a federal income tax case arising under the ordinary and necessary business expense provision of the Internal Revenue Code of 1939.

It is not a case involving prohibition or direct restriction of any kind upon the use of advertising in political campaigns.

And as a income tax case, as what most income tax cases, it comes here with a great long history which I believe has not been fully opened to the Court.

If I may, I would like to summarize at the beginning of my argument the four factors which we believe have to be taken into consideration and which lead inevitably in our view to a conclusion opposed to that advanced by Colonel Reiner -- Wiener.

The first factor is the statutory term "ordinary and necessary."

When this -- when that term first came before this Court, Justice -- or not first -- in the classic case in which it came before the Court, Justice Cardozo said it doesn't impose a rule of law or a verbal formula.

He called it a way of life in fact.

And in the Textile Mills case to which Colonel Wiener referred, the Court ref -- said it's certainly not clear and unambiguous.

The words are general, indefinite, imprecise.

And because they are general, definite -- indefinite and imprecise, they are capable of specific diminution through the course of years by judicial decision, by regulation and that is what has happened.

They're not only capable and susceptible of that, that has been the course of history under this regulation.

If I may use an analogy from the Sherman Act, I don't -- the Sherman Act uses the general expression contract in -- in restraint of trade.

Now today, we don't look at -- at a particular case before the Court and decide whether fresh de novo, looking at it as a matter of dictionary definition a particular contract or combination isn't restraint of trade -- trade because various per se rules of law had been developed over the years such as a -- a combination to fix prices is a perceived violation of the Sherman Act.

Well similarly in -- in this field, the ordinary and necessary business expenses, certain rules of law have been developed over the years and one rule of law that has been developed both by regulation and by judicial decision is that you cannot deduct as a business expense these expenditures for advertising and publicity campaigns for the promotion or defeat of legislation.

Now, about the statutory terms, more than unnecessary, I'd like to say just two other things.

One is that they do not cover capital expenses.

Justice Cardozo also said that there are many necessary payments which are capital charges and therefore not deductible under this phrase.

And the last thing I'd like to say about the statute is that it's recently as the Sullivan case at -- handed down by this Court last term, the Court said that deductions are a matter of grace and you have to fall within the statutory terms as they have been interpreted over the years.

Now the important thing in this case is the regulation.

The regulation to which Colonel Wiener has adverted.

I will -- I hope to go into that at greater length.

What I want to say in the beginning is this is not a -- a baby infant regulation untested in the courts which comes here for the first time.

This is a regulation which goes back to the beginning of the Income Tax Act.

The first Income Tax Act under the Sixteenth Amendment was passed in 1913.

In 1915, the Commissioner published a regulation or published a decision in which he said that lobbying expenses and campaign contributions are not deductible as business expenses.

That was not a regulation, it was a decision.

But in 1918, still under the original 1913 Act, he published the regulation which is identical with the regulation which is in effect today, or the regulation which was in effect at that time the -- this case -- this case and the succeeding case arose.

He added to the phrases lobbying and contribution of campaign expenses, the two phrases "promotion or defeat of legislation" and the "exploitation of propaganda" including advertising other than trade advertising.

So the regulation comes down to us from 1918 issued successively under the various -- various Income Tax Acts that have been passed.

There had been 13 re-issuances of this regulation under each of the Income Tax Act that was -- have been enacted since 1918.

So, it is a regulation that comes down to us with not only the Commissioner's sanction behind it but with the rule of this Court relating to reenactment and congressional acquiescence in federal income tax regulations.

Then there are -- the third factor I'd like to mention are the judicial decisions.

There is the Textile Mills decision of this Court in 1941, almost 17 years ago which we believe is almost wholly, almost but not quite because it didn't deal with an initiative.

But otherwise, we believe it's wholly dispositive of this -- of this case.

And then that decision from 1941 on has been generally followed in the Tax Court and in the Courts of Appeals so that I think I can fairly say, leaving out for one moment the Luther Ely Smith case to which the Tax Court case to which Colonel Wiener referred.

I think that -- with that possible exception which I do not think is an exception but with that -- leaving that aside, there is no dispute or conflict among the Circuits or the Tax Court that this kind of expenditure for publicity cam -- campaign to promote or defeat legislation is not deductible under the regulation on the statute.

And finally, the fourth factor that I'd like to mention is the congressional policy.

I have already referred to the -- the constant reenactment of this -- of the Income Tax Act in the light of this continuing regulation.

Mr. Justice Whittaker adverted to the specific enactments by Congress with relations to -- with relation to charitable contribution and ex -- exemption of charitable organizations.

And then there is -- the further fact that I would like to mention preliminary and that is, that this is not a -- what shall I say a capricious or arbitrary determination by Congress and Congress' delegate the Commissioner acting together.

There is a very decided public policy behind -- behind this regulation.

And that public policy also adverted to I believe in a question by the Chief Justice is the -- is the policy of tax equilibrium that the federal fist for Treasury will stand apart from all -- from attempts to defeat or promote legislation, that either businessmen or non-businessmen who seek to have legislation change will have to bear the entire burden of their own expenses.

That is the policy which has been properly referred to as the Policy of Tax Equilibrium.

Justice Felix Frankfurter: You -- you think it might implicate the Federal Government in being for or against prohibition?

Mr. Oscar H. Davis: No.

No it's a -- it's a financial matter that the -- the Federal Government --

Justice Felix Frankfurter: It's trying to -- every question that arises here was whether the Government could get the money or not get the money.

Mr. Oscar H. Davis: No, no.

But it has to do with both sides in a -- in a controversy.

Take this initiative before the State of Washington.

It was supported by the -- the beer wholesalers and the wine wholesalers, restaurants, groceries and so forth.

It was opposed by the temperance people and they formed a committee.

Now the temperance people, if they had advertising, would not get a deduction because it would not be part of any business of which they -- of which they were carrying on.

They would have to bear the full 100% dollar cost of all the publicity that they issued in the course of their campaign.

Justice Felix Frankfurter: For the same reason that U.S. Steel and all the big industries had not support universities and colleges as being good for business, I suppose he deduct those things in business expenses.

Mr. Oscar H. Davis: Yes, but --

Justice Felix Frankfurter: And people advertise their money, can't deduct the small -- except to the limit of charitable deductions.

Mr. Oscar H. Davis: But Congress has indicated -- Congress has indicated that if U.S. Steel gives -- gives a contribution to a charity which is engaged substantially in propaganda for the promotion or defeat of legislation, it cannot deduct it.

So that this is an area in which Congress has been particularly interested.

Congress has -- Congress and the Commissioner working together, I think that the analogy I would use is of a tree and a vine, a vine having really become part of the tree in the course of the 40 years since this regulation was first promulgated, that the policy here is that in the field of a electoral matters, in the field of legislation, in that particular field, the Federal Treasury should stay aside.

Justice Felix Frankfurter: This is a brand new question as you indicate mainly whether the considerations of policy begins to align contributions but they aren't being pressured to bear upon Congress all or some are difficult that are involved in that.

All the abuses that we know may fairly be transferred to those dates which allowed the initiatives.

Mr. Oscar H. Davis: That issue is a -- is a novel issue.

Justice Felix Frankfurter: What issue?

Mr. Oscar H. Davis: But the background is not novel, Mr. Justice Frankfurter.

Justice Felix Frankfurter: But the -- but the facts maybe so different that the background that we see swaying about it.

Mr. Oscar H. Davis: That may be so.

Well, I would try to explain it on the course of my argument, that is not so, that the same factors apply.

Justice Potter Stewart: Now isn't it true though, Mr. Davis that part of the vine and part of the tree has been the Tax Court decision in the -- what's his name, Leonard Smith, the Missouri lawyer.

Mr. Oscar H. Davis: The Leonard Smith case.

That was a decision in 1944.

Justice Potter Stewart: Yes, so for 14 years --

Mr. Oscar H. Davis: It -- that -- that's right.

We think that the decision is clearly distinguishable.

We also think it is wrong.

Those are two separate arguments.

That this -- that this --

Justice Potter Stewart: On any event, that -- that decision has been on the books --

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: -- for 14 years --

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: -- and any reenactments -- reenactments by Congress during that period would be subject to whatever worth in this case, the reenactment doctrine at hand.

Mr. Oscar H. Davis: Well there's a difference, Mr. Justice Stewart between --

Justice Potter Stewart: Because of the Tax Court, I understand.

Mr. Oscar H. Davis: Between a single decision of the Tax Court.

In fact --

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: -- this Court indicated in the Glenshaw Glass case --

Justice Potter Stewart: I see.

Mr. Oscar H. Davis: -- that the reenactment doctrine doesn't apply to a single decision of the Tax Court.

A difference between that and the consistent history of -- of regulations that you have here.

But relate -- with relations to the Luther Ely Smith case, I would say this, one is, it related to a constitutional provision of the Missouri Constitution.

And the Tax Court went on that ground.

It says that it was a self-operating constitutional provision of the Missouri Constitution.

We do not have here a constitutional provision.

This was an initiative which is going to become a statute of the State of Washington.

So there is a -- there is that distinction between a constitutional provision and then -- and a -- and a statute.

The Tax Court itself in later decisions, applied its -- it's -- the other rule, the rule in which we advocate to referenda and -- and initiatives.

In fact, it even applied it to a constitutional provision of the State of Kansas which brings me to my second point that the Luther Ely case --

Excuse me?

Justice Charles E. Whittaker: Do you really think that's what he construed (Inaudible)

Mr. Oscar H. Davis: I -- I don't think it is and that's why I think the decision is wrong, Mr. Justice [Laughter] Whittaker.

But I will -- I will think -- I will say that's the distinction which the Tax Court thought was the -- was the appropriate one.

And that is why the Commissioner finally was convinced that he ought to withdraw his acquiescence from the --

Justice Charles E. Whittaker: (Inaudible) Commissioner did acquiesce the Smith case, didn't he?

Mr. Oscar H. Davis: Yes, he did.

Justice Charles E. Whittaker: And that was in 1944?

Mr. Oscar H. Davis: Yes, that's right.

Justice Charles E. Whittaker: And that acquiescence continued until he granted (Inaudible)

Mr. Oscar H. Davis: That's right.

And I --

Justice Charles E. Whittaker: (Inaudible) I don't believe as much to the argument that there's been congressional acquiescence (Inaudible)

Mr. Oscar H. Davis: There -- there are two different passage.

Leaving aside the initiative, I'm saying that there's been congressional acquiescence in the general part of the regulation which deals with promotion or defeat of legislation.

Justice Felix Frankfurter: Not that we denied that.

Mr. Oscar H. Davis: But Colonel Wiener did and that's what --

Justice Felix Frankfurter: Well not legislation.

Mr. Oscar H. Davis: Yes.

He -- he had two arguments.

He -- his first argument was that the only part of the statute which was valid was the lobbying, the direct lobbying but that any publicity campaign as in the Textile Mills case for the promotion of defeat of -- of legislation enacted by a -- a legislature could be still deducted --

Justice Felix Frankfurter: I don't see how you can make a protest -- how you can promote legislation by conventional legislature without getting into the territory of lobbying.

Mr. Oscar H. Davis: Well, it was done in the -- in the Textile Mills case which I would like to -- to go into a greater detail.

Justice Felix Frankfurter: Do -- do you think you --

Mr. Oscar H. Davis: I -- I would do it right now, Mr. Justice, because I -- as I say we stand in large measure on that case.

That case did not involve direct lobbying.

That case did not involve any approaches to legislatures at all.

What happened there was that the Textile Mills Corporation was a company which engaged to -- to put on a publicity campaign in order to secure the return of assets which had been invested during the World War I to -- by -- enemy alien assets which have invested.

The Textile Mills Company hired the famous publicist Ivy Lee to put on a publicity campaign and they hired two lawyers to write law review articles without disclosing the -- the personal interest of the --

Justice Felix Frankfurter: Which is already --

Mr. Oscar H. Davis: -- of the company.

Justice Felix Frankfurter: (Inaudible)

Mr. Oscar H. Davis: That we have here too.

Justice Felix Frankfurter: All right.

(Inaudible) when you come to that.

Justice Charles E. Whittaker: (Inaudible) wasn't it?

Mr. Oscar H. Davis: Pardon me?

Justice Charles E. Whittaker: It was -- it was quite strong.

Mr. Oscar H. Davis: It was very so.

The -- but there was no direct approach to the --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Oscar H. Davis: -- to the Congress in any way.

It was --

Justice Felix Frankfurter: They didn't write letters to Congressmen.

Mr. Oscar H. Davis: They didn't talk to Congressmen.

Justice Felix Frankfurter: They wrote law review articles then they got to Congressmen.

Mr. Oscar H. Davis: Law review articles were -- were directed to the general public.

The -- there were no -- they were directed to the public in the sense that the lawyers and other people interested.

They weren't directed to the Congressmen directly.

And the case came here on that basis and the Court decided that this regulation which -- which I'm talking apply and was valid.

And so we have there, we think the -- at least this much of this case.

We have a general publicity campaign, Ivy Lee and legislation, the settlement of War Claims Act which returned the -- enemy alien assets to Germans.

And the Court held not this -- that this was nondeductible because it was illegal.

It said specifically we -- it -- it's a material whether it was illegal that the regulation was properly adopted by the Commissioner, and the regulation covers this situation.

So, it carried this, I say this far.

It carries us to a publicity campaign such as we have here and it carries us to a statute.

It does not carry -- carry us to the initiative but it does carry us beyond the button holding problem with -- which -- on which Colonel Wiener rested part of his case.

Now, if I can return for a moment to the -- the Luther Ely Smith Case about which you questioned Mr. Justice Whittaker.

The Tax Court itself made that distinction.

I agree with you, the Commissioner now agree with you that that is not much of a distinction but the Tax Court thought it was because it applied it only in the case of a constitutional amendment.

It continued to apply the regulation in cases relating to initiatives and in cases relating to publicity campaigns relating to acts of State legislatures or -- or of Congress.

So the Tax Court thought that was the distinction, a -- a self-operating provision of this -- of the constitution.

The reason why the Commissioner acquiesced because at that time he thought that was a proper distinction.

He had seen the light.

He withdrew his acquiescence because it was thought that it would be embarrassing to us to come up here and have to defend both throngs of the -- of the situation in which it would -- because there was no sound distinction between the two just as you pointed out.

But I do think that this much is true that these petitioners and other similarly situated could not properly rest on the Luther Ely Smith case because they don't have a case involving a constitutional amendment.

Justice Charles E. Whittaker: Would that be a white horse case?

Mr. Oscar H. Davis: No, but the -- that's the distinction which the Tax Court itself made in -- in other cases that have -- that have gone on.

Since 1944, there have been at least two, maybe three cases by the Tax Court in which they themselves did not apply the Luther Ely Smith Case to an initiative, in fact, to this initiative in another earlier case, and to a canvas situation so that whatever the rightness or the wrongness, and I think it is wrong, these petitioners had no right to rely upon it.

As far as congressional reenactment, there has been no congressional reenactment relating to them since the -- the Luther Ely Smith -- Luther Ely Smith case came down in 1944, date here was 1948 and there was no statute in between 1944 and 1948.

Unknown Speaker: Did you say that this in fact a court decision (Inaudible)

Mr. Oscar H. Davis: Yes and it did.

Unknown Speaker: (Inaudible)

Mr. Oscar H. Davis: No, not many.

One is the Tax Court case in the companion case, the Strauss case which is a -- which is a initiative in the State of Arkansas.

Then there was case in the Tax Court involving this same initiative in the State of Washington in the McClintock-Trunkey case cited in our brief.

And then there is the Tax Court case involving a Kansas -- in fact it's a Kansas Constitutional Amendment, the Moseley Hotel case.

There are three Tax Court cases involving -- in addition to the Luther Ely Smith case, involving the problem of referendum initiative of votes by the people on.

Justice Potter Stewart: One was the Moseley case.

Mr. Oscar H. Davis: Moseley case was the -- was the -- an amendment to the Kansas Constitution.

Justice Potter Stewart: And that's when?

Mr. Oscar H. Davis: When?

1954.

Justice Potter Stewart: Mr. Davis, I've never read the McClintock-Trunkey case but it's indicated in your brief that the -- the Tax Court decision was reversed by the Court of Appeals.

Mr. Oscar H. Davis: On another ground sir.

Justice Potter Stewart: On another ground.

Mr. Oscar H. Davis: On a -- this issue was not taken to the -- to the Court of Appeals.

Justice Potter Stewart: I see.

Mr. Oscar H. Davis: Now, let me go at once to the congressional policy which is probably at the heart of -- of this case.

As it's been pointed out, Congress in 1934 to 1936 adopted two provisions which we believe have a bearing.

One is the provision which Mr. -- Mr. Justice Whittaker referred to, forbidding the deduction of contributions to charitable organizations of those charitable organizations engaged in propaganda to promote or defeat legislations.

The second provision was a provision saying that charitable organizations which engaged in that kind of promotion or defeat of legislation would no longer be tax exempt.

Now, these two legislative provisions I think are clear indication that Congress does not want federal subvention, federal support, federal subsidy for the promotion or defeat of legislation.

And this general policy was foreshadowed in the decision by Justice -- Judge Learned Hand in 1930 in the Slee case, S-L-E-E, that involves the American Birth Control League, involved the contributions of the Birth Control League.

And the Second Circuit Court consisting of Judge Hand, Judge Mack and Judge Chase refused to allow the charitable deduction even though at that time there was no such statutory provision, just came in to the statute later.

At that time, it was simply a provision for deduction for charitable contributions.

Judge Hand said as Mr. Wiener has referred to and I -- in alignment to that, I'd like to reach the Court.

Political agitation as such is outside the statute, that is outside in the Internal Revenue Code.

However innocent the aim though -- though it had nothing to doubt -- to doubt a propaganda which is a polemical word used to describe a publicity of the other side.

Controversies of that sort much be conducted without public subventions.

The Treasury stands aside from that.

That we think is the basis of the -- of the entire policy of this regulation and of the statute which Congress has enacted.

Let me -- let me point out to the Court if I may how our view which I think I can fairly say is the prevailing view works in this situation.

Petitioners -- Mr. Wiener's client and other similar situated can certainly go out and spend money for a publicity campaign to defeat this initiative in the State of Washington.

They are certainly free to do that within the limits of Federal and State legislation.

Justice Felix Frankfurter: What does that mean?

Mr. Oscar H. Davis: I mean if there are -- if they may -- maybe limits on the amount -- on -- on the amount of expenditures.

I -- I just want to leave that issue out of the case because it isn't here.

The --

Justice Felix Frankfurter: Are you also putting to one side any suggestion of any kind of blackening aspects to this kind of activity?

Mr. Oscar H. Davis: No, I -- I do not because we --

Justice Felix Frankfurter: You do not?

Mr. Oscar H. Davis: We think it exists in this case and I -- I don't have time to -- to go into it at length but the -- we have printed it in the -- at the end of the record the various or selection from the various advertisements which are published.

The thing that I would like to call to the attention of the Court is that nowhere, nowhere and this is the finding of the trial court isn't indicated that the people who are publishing these advertisements are really the beer and wine wholesalers in the State 0of Washington.

It is put out under the title, Men and Women Against Prohibition with an executive secretary's --

Justice Felix Frankfurter: Would it --

Mr. Oscar H. Davis: -- names and so forth.

Justice Felix Frankfurter: Then why don't you -- why don't you say they have no standing to understand this.

Maybe -- I don't -- I don't -- I guess I don't apprehend what you've said.

Mr. Oscar H. Davis: No, I believe you do, Mr. Justice.

What I'm saying -- no.

But they -- they --

Justice Felix Frankfurter: It did more to me than they're there.

Mr. Oscar H. Davis: No, they -- they published -- they were the -- the publishers of these advertisements in reality.

They did not put their names to it.

They did not indicate to the people of Washington that they -- the liquor interests were opposing the State initiative.

Justice Felix Frankfurter: So you mean --

Mr. Oscar H. Davis: They made it appear --

Justice Felix Frankfurter: They concealed that there was --

Mr. Oscar H. Davis: They concealed their interests.

They -- they made it appear that they were the -- “The men and women against -- of Washington against prohibition."

As if they were a -- an organization of disinterested organization and their advertisements --

Justice Felix Frankfurter: I should think a lot of adversary would have to be condemned as reprehensible, is that so?

Mr. Oscar H. Davis: No.

I don't condemn it as reprehensible but I condemn it as -- with it -- I -- I state that it was with the --

Justice Felix Frankfurter: Was stated to you --

Mr. Oscar H. Davis: No.

Justice Felix Frankfurter: Was it stated the way lobbying is to you?

Mr. Oscar H. Davis: It is -- it is within the -- the thing with which Congress has always been concerned that is advertising in electoral campaigns which does not reveal the source of it.

Justice Felix Frankfurter: I'm not -- I'm not rejecting your legal conclusion.

What I want to know is whether it carried within the sea of mystery that lobbying -- and that's the other thing there.

Mr. Oscar H. Davis: It carries partially within.

It is not as bad as lobbying in the old-fashioned sense but it carries --

Justice Felix Frankfurter: Or do they find idealist sense?

Mr. Oscar H. Davis: Well yes, it carries within it the same refined -- the refined idealist sense, exactly that because what -- what happens is that a large amount of money is spent for some advertising, some of which is quite lurid.

There are pictures of some of which I think can fairly be said to be cut.

Justice Felix Frankfurter: Understanding that that domain it (Inaudible)

Mr. Oscar H. Davis: Yes, but I mean this -- this is -- this is the idealist sense.

Advertising which it -- the source of which is concealed from the general public of the State of Washington so that the public has no means of evaluating the interests of the writ of the publisher of the advertisement.

Justice Felix Frankfurter: They could guess that these people didn't want to be put out of business or that --

Mr. Oscar H. Davis: There is no indication that it's these people.

Justice Felix Frankfurter: Well, they -- they certainly could guess they didn't want the State of Washington to go into the (Inaudible)

Mr. Oscar H. Davis: Yes, but -- as Colonel Wiener says they might just have been people who like taverns.

Justice Felix Frankfurter: (Voice Overlap)

Mr. Oscar H. Davis: The suggestion is that -- that these were the brewers or -- or the wholesalers and that they did not reveal their interests.

The second point I have to make on this issue is that there is a degree of personal solicitation.

You will see in these advertisements as in the companion case lists of people of the State of Washington who support these advertisements.

Now these people didn't arise out of the blue.

They were solicited.

People -- in fact the -- the records shows that on -- on the -- the trust fund, the beer wholesalers' trust fund which published this advertisement on behalf of these taxpayers and other similarly situated had field men who apparently went out and collected names or -- or got people --

Justice Felix Frankfurter: You mean, you had --

Mr. Oscar H. Davis: -- who had agreed to do --

Justice Felix Frankfurter: -- what happens with deductibility of those two before doing it?

Mr. Oscar H. Davis: We have the deductibility of the advertisements --

Justice Felix Frankfurter: Yes.

Mr. Oscar H. Davis: No.

That all -- of all the expenses, yes, we have all the expenses including -- you see, these people made a contribution to a trust fund.

The trust fund paid all these expenses so they -- they have a pro rata share of all the expenses of the trust fund.

Justice Felix Frankfurter: I have great difficulty with general proposition being out that -- that if legislation comes to the people, that the people most affected by the action to be taken shouldn't be able to address this.

Mr. Oscar H. Davis: Oh yes.

I don't deny that for a moment.

Justice Felix Frankfurter: And could we -- and is that just -- just as much of a business expense as -- as paying for the raw materials that goes into manufacturing?

Mr. Oscar H. Davis: Well on the first half of your -- of your statement Mr. Justice Frankfurter, I -- I agree perfectly.

They have the right to it -- to address -- address the public.

Justice Felix Frankfurter: And that's -- myself I should be clear, it could not be prohibited constitutionally, myself.

Mr. Oscar H. Davis: I don't suggest for a minute that it will --

Justice Felix Frankfurter: I'm not saying you do.

Mr. Oscar H. Davis: Yes.

Justice Felix Frankfurter: If it has that measure of legal protection then I find it very hard to deny the quality of a business expense.

Mr. Oscar H. Davis: Well, the reason why it should be denied the quality of a business expense, in addition to the history which I have -- have in mind is the fact that there is a policy of tax equilibrium that the brewers and the wholesalers should not get a business expense where the temperance -- temperance advocates would not.

Particularly since the brewers will be able to spend more money on this -- on this basis being wealthier organizations and -- and the graduated income tax will allow them to really pay only perhaps 52% of the cost of all these advertising whereas the temperance advocates, the people on the other side will have to bear 100% of the cost here.

Justice Felix Frankfurter: No.

But it's the usual experience in life, advertently it's own reward, that you don't get paid for with (Voice Overlap).

Mr. Oscar H. Davis: Well that -- that is –-

Justice Felix Frankfurter: We're a -- we're a private enterprise society.

Mr. Oscar H. Davis: That maybe true and I would not say that Congress couldn't adopt the other view.

My position is --

Justice Felix Frankfurter: What I'm suggesting is it -- it may have adopted the other view in saying, “People who are in it mainly for (Inaudible) should have on reward converging.

People who are in business should be allowed to conduct their business enterprise.

Mr. Oscar H. Davis: They did but they -- Congress has also acquiesced as this Court has said several times, acquiesced over a long period of years in a -- in a regulation which says gladly that if you expend money for the promotion or defeat of legislation -- legislation, you cannot deduct it.

Justice Felix Frankfurter: I'm supposing, what is the case where this Court had to decide or to initiate that the referendum was legislated.

Mr. Oscar H. Davis: Now that -- that this Court has never decided.

No.

Justice Felix Frankfurter: Oh, it can.

There's one (Inaudible)

Mr. Oscar H. Davis: Oh -- oh, yes.

Justice Felix Frankfurter: Certainly at times.

Mr. Oscar H. Davis: Oh, well, I -- it had decided.

It is clear that initiative in referendum are legislation in the general sense.

We have cited in our brief cases from the Supreme Court of California, Washington, North Dakota which makes it very clear that on -- in those days and I presume this is true generally of initiative in referendum States that initiative in referendum aside from constitutional amendments are ordinary legislation of the State.

The -- that -- that's --

Justice Felix Frankfurter: But not decided by a State in -- of this (Inaudible) it is at most initiative States.

The State itself puts out supporting arguments for the adoption.

Mr. Oscar H. Davis: Yes.

And that's indicate -- that that's -- that the State is going to bear the cost of -- of the -- the publicity campaign for the -- the promotion or defeat of the particular legislation and -- and the Federal Government should not be required to bear that another additional portion through the use of the deduction for ordinary and business expense.

Before my time is up, I just like to say in this case that perhaps this Court has never passed upon the issue of whether this business deduction is -- is allowable with respect to an initiative of referendum but three Federal Circuit Courts repeal have done.

The two involved in this case and the next case, that is the Eighth and the Ninth Circuit, not only in these two cases but in earlier cases going back 1934 and the Ninth Circuit at least went back to two cases in 1934 and 1936 and the First Circuit in a recent case involving a greyhound referendum in -- in Suffolk County in -- in Massachusetts, the Revere Racing Company case in which there is a referendum as to whether greyhound racing should be continued in the -- in that particular county and publicity campaign was indulged in as here and the expenses of that campaign were not allowed to be deducted under this record.

Justice Potter Stewart: Mr. Davis, were all these cases 23 (a) (1) (A) cases or were they --

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: -- 23 (o) cases?

Mr. Oscar H. Davis: No, they were all 23 (a) (1) cases.

Justice Potter Stewart: Because you've addressed a good deal of your argument to the -- to this proposition as though it were a 23 (o) case.

Mr. Oscar H. Davis: I have not tried to Mr. Justice.

If --

Justice Potter Stewart: Perhaps you have tried to but you haven't for example as -- so far as I know even mentioned the Heininger case.

Mr. Oscar H. Davis: Well, I -- I will in -- in the second case and I will --

Justice Potter Stewart: Very well.

Mr. Oscar H. Davis: I will -- I will certainly deal with that.

Chief Justice Earl Warren: Colonel Wiener.

Rebuttal of Frederick Bernays Wiener

Mr. Frederick Bernays Wiener: The Court please.

I was about to say what Mr. Justice Stewart said namely that Mr. Davis kept as far away from the Heininger case and from the business effect of this initiative on my client's business in his argument as his colleagues did in their brief, and he talked public subvention.

This has nothing to do with public subvention of legislative activity anymore than the decision in the Heininger amounted to public subvention of third rates and fraudulent dentists.

Now about these advertisements in the allegation which is an afterthought that the source wasn't revealed.

In the first place, the argument circulated against the initiative that State expends under the Washington statute particularly pointed out at 100 page, 101 of this record that it would put a lot of people out of business including not only the beer capitalists but the poor working men and the laborers who carted the kegs and who brewed the beer and who turned the handles on the -- at the bar.

Now, so the business interests of these people was clearly expressed.

Men and women against prohibition, who is to say whether that wasn't an accurate collective description of the people who contributed.

The important thing here is that the composition of the group was never mentioned at the trial.

It was never litigated.

The District Court specifically found that everything that was done was perfectly legitimate.

And as a matter of fact, these advertisements were not in the printed record in the Ninth Circuit and weren't brought here in any form until after certiorari was granted.

And of course it isn't surprising that being afterthoughts they -- these arguments have some very obvious defects.

Chief Justice Earl Warren: Colonel, could I ask you this?

If we should decide that these expenditures are deductible, would it not follow that expenses of a -- an organization like your own putting an initiative measure on the ballot for the benefit of its own business should be deductible?

Mr. Frederick Bernays Wiener: Well, possibly so but that's a further step.

Chief Justice Earl Warren: Well -- but --

Mr. Frederick Bernays Wiener: That -- if that --

Chief Justice Earl Warren: It seems to me that it would follow.

I -- I don't see --

Mr. Frederick Bernays Wiener: Well --

Chief Justice Earl Warren: -- what difference it would make --

Mr. Frederick Bernays Wiener: -- I --

Chief Justice Earl Warren: -- what side of the fence you're on.

Mr. Frederick Bernays Wiener: I --

Chief Justice Earl Warren: There's so many -- there's so many businesses that -- that contend that if there's any regulation of their business at all, it will destroy their business and many of them contend that there are shackles on them at the present time.

And if your people decided to initiate a measure and pay the expenses of it to take off the shackles of the businesses they claim, why wouldn't that be just as deductible as this?

Mr. Frederick Bernays Wiener: Well, in one sense, it might be, in another sense, it might not be.

Now, the McDonald case, the campaign expenditures back in 323 U.S.

Chief Justice Earl Warren: Well, then, I take it as entirely different.

Mr. Frederick Bernays Wiener: Yes, but the -- the prevailing opinion said his expenses were incurred not in being a judge but in trying to become one.

There might be a difference there but on the other hand, there might also be this line.

Suppose a concerned puts out a new product, why can't it -- is its deductibility for advertising expenses limited to existing products or can forth -- put out the ad so on trying to sell that to the public.

Also on the shackles, we -- there is a case that we have cited, a very interesting case in the House of Lords where a -- and in England, they have virtually the same ordinary and necessary deductibility provision that we have here.

The difference is verbal, there is no difference in substance.

This was a firm of sugar manufacturers who campaigned to resist nationalization by the British Parliament.

And the House of Lords said the money expended to resist that nationalization was an expense incurred to save their business and therefore it was deductible.

But the -- the point here is we don't have to delimit at this time the outer reaches of the contention that my clients are making.

All we are relying on is the Heininger case, the doctrine of a right of business self-defense to protect an existing business against destruction, and to protect it against destruction by appealing to the people and not appealing to the legislature.

Now, that being so, whether the arguments are lurid as my Brother Davis contends, whether they were "lurid" in response to some rather extreme views put forth in there on the record by the proponents of the -- of the measure, I don't think we have to decide because I take it that's the -- the merit of the argument isn't the deciding factor whether you have the right to make it nor in this case, whether you have the right to deduct the cost.

Print this transcript Transcript: 

Argument of E. Chas. Eichenbaum

Chief Justice Earl Warren: Number 50, F. Strauss & Son, Incorporated, of Arkansas, Petitioner, versus Commissioner of Internal Revenue.

Mr. Eichenbaum, you may proceed.

Mr. E. Chas. Eichenbaum: Mr. Chief Justice, may it please the Court.

In this case, certiorari to the Eight Circuit tried in the Tax Court, there ruled against the petitioner on the grounds that there was lobbying.

There was a practically similar fact situation as in the case described by Colonel Wiener and initiative in referendum measured opposed by the clients F. Strauss, Incorporated, a liquor wholesaler.

Chief Justice Earl Warren: Was it initiative or referendum (Voice Overlap) --

Mr. E. Chas. Eichenbaum: It was an initiated act.

And the initiated act would have brought back prohibition to the State of Arkansas.

And I may say that in this case, there is no 90% question of whether or not the business of the taxpayer would've been destroyed.

There is no question as to percentage.

The record clearly indicates, and it has never been contravened, our taxpayer would've been out of business.

I should like to say that our record differs but it's likely with reference to the state of facts other than with that situation.

There are, in this record, a typical advertisement such as have been heretofore discussed.

I should also like to say, and I think that it is the crux of this situation that the ordinary and necessary expense undergone by this taxpayer apart from the regulation would be completely allowed.

I repeat, apart from the regulation, the expenditures would have been ordinary and necessary expense.

Now, why ordinary and necessary?

We may deal slightly with the elementals for a moment, but I think it gets back to something that was in the question by Mr. -- Mr. Chief Justice a few moments ago.

What is ordinary in the sense of the statute and the deductions which are permitted under the statute?

Ordinary or the expenses in the sense that they are usual and customary in the business community and so to the challenge and so to defend is ordinary.

I -- if I may say so that which embarks upon a new course, a new venture, again becomes an ad hoc situation, again becomes a matter for determination of whether it is ordinary and necessary.

But there can be no dispute that to defend the preservation of the taxpayer, I need not cite the well-known phrases in Heininger from the circuit court which is -- I have cited approvingly by this Court in the Levy case that if you have no business, you have no income, if you have no income, you have no tax.

In this case, ordinary is in the sense of the usual and customary and it becomes ordinary to defend against the challenge.

And necessary is necessary, necessary in the usual sense and in the tax import.

Necessary, because it becomes appropriate and helpful and in this sense, necessary for survival.

So, apart from the regulation with which we shall deal in this case expense allowable ordinary and necessary.

Now, we take the position and we differ slightly probably only in the order of presentation with our Brother Colonel Wiener, we take the position that the regulation does not apply.

We take the -- the position that it is not intended by its terms so to apply.

Now, the reason that we take that position is that we say that legislation, in its ordinary sense, does not include the initiative and referendum procedures or the constitutional procedures of amendment.

And we advance that reason for -- on two bases.

The first is that we think that it may well have been out of contemplation of Congress in the enactment of the statute or out of contemplation by the Commissioner in the promulgation of the regulation that those appeals directly to the people should have supervision or governing restrictions.

Now, we do say that with reference to such basis that Luther Ely Smith is, of course, highly significant and the acquiescence of the Commissioner for the period of 14 years which we shall touch upon in the matter of the question of reenactment again even more highly significant.

What we say beyond that that the purpose of the regulation, if not, if -- if applicable to matters of all technical character in legislation and one can characterize technically initiative in referendum procedures and constitutional amendment as a type of legislation, we say that the purpose of the safeguards are to reach the influencing of legislative procedures so as to safeguard against improper acts, that is to say that the regulation, the regulation itself is not applicable because it is intended to pertain to illegal activities.

And why may we say that?

We say that because of all reasons Textile Mills decision itself indicates the applicability.

Those were not idle words that were written when defining the -- the prerogatives of determination by the Commissioner.

This Court said that ordinary and necessary may be construed and interpreted to mean -- to -- to convey certain meanings, and what meanings?

Meanings of ordinary and necessary as distinguished from the illegal and not necessarily always the definitive certainties of illegality.

In Textile Mills, there may have been no certainty upon which -- that some could be placed.

But as the Court said, it belongs to that class of contracts, that class of contracts which might be and which you use the word “tainting”.

Ordinary and necessary have their specific meanings in the interpretation of tax law in the opinion in the Hubert case.

Necessary had a certain meaning.

It was not necessary to violate the law.

It is always within the prerogatives of the Commissioner to interpret, interpret but not extend.

Interpret but not subtract from the substantiality of the provisions.

Why do we argue initially that the regulation is invalid?

We do it for a reason.

Because we say that by giving this interpretation, we have avoided the question as under the rules of interpretation, we think we should proceed to avoid the questions of constitutionality.

Because certainly, if applied, I will say in -- invalidity and unconstitutionality, because if applied to ordinary and necessary expenses to the same degree, as may have been argued in the preceding case, to ordinary and necessary expenses, it is an obvious over extension of the statute.

Applied so, applied so the regulation, applied to the facts in these cases, constitutes a reaching out into the area of legitimate business expense and ringing from the business itself the right to defend.

Now, why constitutional?

And we think this is a necessary position which we must take.

We think that it is apparent, that not only as counsel for the Government has stated in the companion case, not only our deductions matter of -- matters of grace, but deductions when extended cannot be invaded for the purpose of distinction.

And there, if we may say so again, we urge that Speiser versus Randall, First Unitarian Church obviously extend to a situation.

It is more than a deduction immunities granted under the law cannot be invaded justly.

Deductions cannot be invaded justly.

Now, let's talk about establishing a tax equilibrium, that sounds very good except that there's no tax equilibrium between one who has income and one who has an income.

There is no tax equilibrium between the individual and the corporation, between the individual who is in business and not making income, not earning income and one who has.

A tax equilibrium has no place here.

Nor do I think that tax equilibrium has any point in the history of this.

I should like to touch upon that history.

I think it varies upon the question of reenactment.

Now, there has been mentioned here and I touched upon the arguments which preceded of that during this period in which the regulation was on the books that there was only one case, the Luther Ely Smith case, the Tax Court case.

I beg to differ.

Now, let's see what cases there were during the period prior to 1939 as being recognized by counsel in statement that post 1939, no enactment to the tax year.

Well, now, we recall Lucas versus Wofford, Fifth Circuit.

What was Lucas versus Wofford?

Well-known to this Court, appearance before legislative committee, deduction allowed, ground legal methods of presentation in matters of legislation.

Los Angeles and Utah Rail -- Los Angeles and Salt Lake City Railroad Company and all the companion railroad company cases which, as the Court will recall, were the cases in which railroads subsequent to World War I and the time in which the Government took over the operation of railroads were about to return them.

And all the railroad companies filed, issued it -- advertisements with reference to the type of legislation and the type of conditions because it would be done by legislation that the railroad should be returned in.

Now, during these years -- during the years pre 1939, there was no single instance.

No, I -- I am in error.

There was.

There was one case, and it was not in accord with the majority, the Sunset Scavenger case, if I may refer to it.

But all other cases during that period, completely distinguished the legal from that which was within the tainted class from that which the Commissioner should properly define and determine and interpret.

And so, up to 1939, what was the situation?

Could there be acquiescence by -- and the Eighth Court suggested that there might be reenactment by acquiescence with reference to cases which favor the petitioners?

And I should add that Textile Mills in setting forth that the purpose of the regulation was to permit the Commissioner to define that class, that deduction which should be disallowed only again serves to point up the reenactment.

Reenactment is the acceptance of long, well-continued, well-settled rules.

Now, did that exist here?

Counsel would indicate it existed.

But I have this to say about the position of the respondent in this case.

Certainly, one would think, certainly one would think that the person most likely to know that rule if it existed would be the respondent, would be the Government.

But up until 1950, the year our tax year involve the respondent himself, the United States Commissioner of Internal Revenue was himself interpreting, was himself interpreting the regulation not as counsel has argued.

There is in the Research Institute of America Inc., January 13, 1950, tax service, and I -- I must suggest that the authority is not as authentic as if I were able to learn something -- bring something of higher authority.

The announcement of the Internal Revenue Service ruling regarding the deduction of contributions to Colorado United Inc., and there, the contributions by brewers to the organization were allowed as a business expense deduction in the ruling obtained for the United States Brewers' Foundation.

The Appendix D, this happens to be a brief of amicus curiae in the Court of Claims, I -- I must apologize that we didn't have it in our own brief.

The Commissioner of Internal Revenue under date of August 11, 1950 just about the time that our taxpayer was serving his business, was saving his business address the communication to Mr. Howard T. Jones, Executive Secretary of the Distilled Spirit Institute in which he answered the request for the ruling of the bureau in connection with Colorado United Inc.

And I quote, “The Bureau has not issued any published ruling in this matter but it has held that contributions to Colorado United Inc. by taxpayers engaged or financially interested in the alcohol beverage industry are deductible under Section 23 (1) A of the Internal Revenue Code.”

Justice Charles E. Whittaker: (Inaudible)

Mr. E. Chas. Eichenbaum: No, and I apologize.

We should've had it in our brief.

Actually -- actually, I applied for a copy of the ruling to the Bureau and they told me they want the published ruling and I couldn't have it.

And I didn't know later that it was -- they were been secured and I found that in the brief from Mr. Hart Spiegel in the Court of Claims, his amicus curiae in this case and as this case in the Court of Claims.

And we knew about this ruling.

We knew that the Commissioner had all -- had taken the position up to 1950 that these expenses were deductible under 23 (a) (1) (A) but we had no published ruling on it.

They refused to give us one.

Justice Potter Stewart: Mr. Eichenbaum, did -- does it appear in there what Colorado United Incorporated is?

Mr. E. Chas. Eichenbaum: Oh, yes, sir.

I -- may I read it?

Colorado Brewers formed an organization, Colorado United Inc., for the express purpose of defeating a state prohibition amendment.

Contributions by brewers to the organization were allowed as a business expense deduction in a ruling obtained for the U.S. Brewers' Foundation.

“Reasons given were,” I'm quoting from Research Institute of America, “reasons given were that, one, taxpayer was financially interested in the activity which would help him stay in business and two, prohibition would've been imposed by a constitutional amendment rather than legislation.”

Again, distinction.

I -- may I reserve --

Chief Justice Earl Warren: Yes, you may.

Mr. E. Chas. Eichenbaum: I -- I have --

Chief Justice Earl Warren: You may use whatever time you wish.

Mr. E. Chas. Eichenbaum: All right.

Thank you.

Chief Justice Earl Warren: Mr. Davis.

Argument of Oscar H. Davis

Mr. Oscar H. Davis: Mr. Chief Justice, may it please the Court.

The counsel has not previously furnished to us the material on the Colorado United Contribution which he discussed with accorded -- appears clearly from the excerpt that he read in the Research Institute of America.

And my colleague informs me that the amendment in the -- that the provision in that case was a constitutional amendment and the Commissioner was then following the decision in Luther Ely Smith at which he -- in which he had acquiesced, so that the decision that the grant of an allowance of the contribution in that case went under this old decision in which the Commissioner had then acquiesced which he does not know acquiesced and which we believe to be totally wrong.

I have reserved to this case the discussion of the Heininger case because we conceive that in this case, the adoption of prohibition in the State of Arkansas would have put the petitioner out of business.

I should, perhaps, have said in the earlier case that we do not concede that the adoption of the Washington initiative would've put the tax person in that case out of business.

We will not press the point that they would've been financially effective.

We do not concede that they would've been put out of business.

In this case --

Justice John M. Harlan: (Inaudible)

Mr. Oscar H. Davis: No, sir, the -- the -- only the finding was that 90% of the wholesalers would've been put out of business.

But there's no showing which particular wholesalers would've remained in existence.

And it could very well been that those particular wholesalers would've been able to remain in -- in existence.

And the District Court as Colonel Wiener pointed out and the Court of Appeals said that there was even no showing that they would be affected by the -- by the injuriously affected by the initiative.

But in this case, there is no such question.

And -- so I would --

Justice William O. Douglas: (Inaudible)

Mr. Oscar H. Davis: Well, it is --

Justice William O. Douglas: -- clear.

Mr. Oscar H. Davis: Here, it's clear that they've been put out.I would say, and I said, that the (Inaudible) in the other case.

There were -- 90% of the wholesalers had been put out of business.

And it would depend upon the financial status and other factors whether a particular wholesale would've been able to -- the wholesalers aren't fungible and -- that's what [Laughs] --

Justice Hugo L. Black: Do you think that -- that distinction would be --

Mr. Oscar H. Davis: Pardon.

Justice Hugo L. Black: -- do you think that distinction would -- should change the result the fact that --

Mr. Oscar H. Davis: No.

Justice Hugo L. Black: -- it would've put -- whether they might have had a chance to save them?

Mr. Oscar H. Davis: No, no, sir.

I don't think that the distinction turns on that at all.

But I just say that in case it is thought that the distinction should turn on that.

Justice Felix Frankfurter: Do you think we could reverse this case and not Mr. Wiener's case?

Mr. Oscar H. Davis: I do not think so.

But it is possible that others might.

Justice John M. Harlan: He was reserving the point.[Laughter]

Mr. Oscar H. Davis: Now, to the discussion of the Heininger case that debt is to engage in false and fraudulent advertising through the mails.

The first thing to point out, I think, is that that case involve litigation expenses and not lobbying.

Litigation expenses have had a long and different history under the Internal Revenue Code from lobbying expenses and expenses for the promotion or defeat of legislation.

There is no comparable tax equilibrium policy, we believe.

Justice Felix Frankfurter: (Inaudible) wonderful phrase.

I -- I mean to be (Voice Overlap) --

Mr. Oscar H. Davis: I'm indebted to Professor Stanley Surrey of Harvard Law School for the phrase.

The -- the --

Justice Felix Frankfurter: (Voice Overlap) after get up there or before he got there.

Mr. Oscar H. Davis: I believe after he got there.[Laughs]

The -- the concept --[Laughter]

Unknown Speaker: (Inaudible)

Mr. Oscar H. Davis: The -- Mr. Justice, the concept, as you know, goes back to -- to Judge Learned Hand or even earlier.

But Stanley Surrey is the author of the particular phrase.

Justice Hugo L. Black: I --

Justice Felix Frankfurter: Put it in words that fix the idea.

Mr. Oscar H. Davis: Shorthand (Inaudible)

Justice Felix Frankfurter: Yes.

Justice Hugo L. Black: What was --

Justice Potter Stewart: Isn't it --

Justice Hugo L. Black: -- your phrase again?

I don't --

Mr. Oscar H. Davis: Tax equilibrium, tax equilibrium.

To -- to make sure that people supporting an opposing particular aspects of legislation do not get a benefit from the Federal -- from the Federal Treasury, that is if I can repeat what I've said before and elaborate on a little bit, the tax person in this and in the preceding case would be able to get a very sizable deduction of -- not in their particular case, to call the brewers of -- or liquor interest of Arkansas.

It spent about a $100,000 to defeat prohibition in Arkansas, and the other case about over $200,000 was spent.

They would -- the various interests involved would be able to deduct under the theory of the petitioners in these cases, the -- the cost of this advertising completely.

Their opponent who were not engaged in business would not be able to deduct it at all.

They would have to pay out of their own pocket the full amount of any countervailing advertising and publicity.

Also --

Justice Hugo L. Black: Was it illegal -- was it illegal to observe?

Mr. Oscar H. Davis: Oh, no, no sir.

No, sir.

Justice Hugo L. Black: And there's no statute fixing but -- but they've set it all.

Mr. Oscar H. Davis: As -- as far as I know -- at least that they were -- it was within -- they were within the -- the limits of -- of --

Justice Felix Frankfurter: Mr. Davis, do you think Bishop Cannon would like to be put on -- on a level and be quality with the brewers?

Mr. Oscar H. Davis: I think, in this respect -- in --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Oscar H. Davis: -- in respect to the --

Justice Felix Frankfurter: (Inaudible)

Mr. Oscar H. Davis: -- to the financial --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Oscar H. Davis: I think, yes.

Yes, I think so.

I think it's terribly important in -- in political life.

How much money you have to spend and if the amount of money you have to spend is going to be half or maybe more than that because the -- your federal income tax is -- is going to take it up, then you're better able to spend a lot of money.

And --

Justice Felix Frankfurter: You brushed off my suggestion that virtue is not intangible.

Mr. Oscar H. Davis: No, but I -- I think the -- the -- if I may use your suggestion, Mr. Justice, I think that what this regulation has done and what Congress in -- in reenacting an acquiescing in this regulation.

And the word “acquiescing” in the regulation is this Court's word two or three times in decisions in other fields not my word alone.

What Congress has done really is to say that in the field of elections and on the field of legislation, you have to act as a citizen.

You cannot act as a businessman.

You have to act as a citizen, whether you support or oppose, you have to act as a citizen.

Justice Potter Stewart: But Mr. Davis, as you pointed out this phrase “tax equilibrium” which has a very nice ring to it, originated perhaps as such with Professor Surrey.

But it was -- it dates back to cases like Slee against --

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: -- the Commissioner in the Second Circuit.

But isn't it true that those were 23 old cases that they were contributions made.

Mr. Oscar H. Davis: Yes, the -- but --

Justice Potter Stewart: Now, therefore, isn't it also true that -- that in addition to -- philosophically, also looking back to the terms of the statute.

There's a very, very deal in what Mr. Justice Frankfurter has said that the reason that the proponents of prohibition couldn't deduct this, and that the reason that these petitioners, perhaps, could deduct this was that in the one case, it has nothing whatsoever to do with their business, then in the other case, it meant the destruction of their business.

In one case, it was a business -- not a business expense.

In the other case, it clearly was.

Now, isn't that --

Mr. Oscar H. Davis: Well, Mr. Justice Stewart --

Justice Potter Stewart: (Voice Overlap) --

Mr. Oscar H. Davis: Mr. Justice Stewart, if we were faced here with just the words of the statute and this problem arose the first time in 1958, I do not deny that I would have a very hard case.

But I am not faced with that situation.

I am faced with a statute and a regulation, a regulation which is almost contemporaneous with the first income tax act, a regulation which has been interpreted through the years, particularly since this Court decided the Textile Mills case in 1941 as disallowing this kind of deduction.

And so I don't think that I have to bare the burden of what one would have to decide they know but with all the -- without the benefit of this past history.

I have -- I think I can properly rely on the fact that this regulation which -- which adopt and incorporate the notion of tax equilibrium has been on the book since 1918 and was foreshadowed even in 1915.

And I think I can rely greatly on that.

Justice Potter Stewart: Well, my only -- my only query with was how much can you rely on cases such as Slee --

Mr. Oscar H. Davis: I -- I don't --

Justice Potter Stewart: -- which have nothing to do with business expense to the taxpayer?

Mr. Oscar H. Davis: I don't rely on -- on Slee.

I just --

Justice Potter Stewart: All right.

Mr. Oscar H. Davis: -- mentioned Slee as a case which really first articulated this notion which we think was incorporated in -- in the regulation previously and which has been carry on through.

The cases that I rely on the lower court are cases all under 23 (a) (1), all the cases that I rely on in this Court, the case particularly.

The Textile Mills case is a -- is a similar case.

I rely on no case really under the charitable contribution.

Justice Felix Frankfurter: Mr. Davis, may I just give you the suggestion that that the crux of the question, milking the coconut, which you so subtly administered the word, when you used the word -- phrase, “this kind of deduction,” the whole question is whether it's -- whether it is this kind of deduction.

Mr. Oscar H. Davis: Well --

Justice Felix Frankfurter: That's the question.

Mr. Oscar H. Davis: A deduction for a publicity --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Oscar H. Davis: -- yes, yes.

Justice Felix Frankfurter: All right.

Mr. Oscar H. Davis: But a deduction for a publicity campaign.

I would like to get back to that if -- if I --

Justice Felix Frankfurter: Not just publicity because certainly publicity having -- having to do with --

Mr. Oscar H. Davis: No.

Justice Felix Frankfurter: -- any of the Government that process are allowed.

Mr. Oscar H. Davis: No, publicity having to do -- it's -- again I say, it's not a question of disallowing or prohibiting the publicity.

Justice Felix Frankfurter: Well, I mean allow --

Mr. Oscar H. Davis: Yes.

Justice Felix Frankfurter: -- deductibles.

Mr. Oscar H. Davis: Well, there's a question of how much the -- the regulation says advertising other than trade advertising is not allowable.

And --

Justice Felix Frankfurter: Well, I do commend the House of Lords on that business what they do and mostly --

Mr. Oscar H. Davis: Yes, well, on the House of Lords, if I may go off in a minute, the statute is different.

It does not contain --

Justice Felix Frankfurter: I mean -- I -- I didn't mean to say it governs this case.

Mr. Oscar H. Davis: I -- I --

Justice Felix Frankfurter: I wanted -- I want --

Mr. Oscar H. Davis: But as Colonel Wiener mentioned, I'd like to say the statute is different.

It was accredit to a decision of the House of Lords.

There was no such history as we have here and no regulation.

Justice Felix Frankfurter: I want to -- to make one commendatory remark, mandatory to you and counsel on the other side.

It took the House of Lords five days to argue this case.[Laughter]

Mr. Oscar H. Davis: That's true.

I'm not sure that they cannot with a wiser result.

Justice Felix Frankfurter: Could you (Inaudible)

Chief Justice Earl Warren: But they still disagreed.

Justice Felix Frankfurter: They still --

Mr. Oscar H. Davis: They still disagreed.[Laughter]

Justice Felix Frankfurter: (Inaudible)

Mr. Oscar H. Davis: Mr. Justice Stewart, let me return to the Heininger case because I do think that it has a bearing here, and I don't mean to avoid this cut.

The first thing, as I said before, it involve litigation expenses which has a different history.

The second thing is, that there was no regulation involve there.

And at the very beginning of this opinion, Mr. Justice Black for the Court said, “We do not have here the aid of an interpretive regulation of the Commissioner as we had in the Textile Mills case.”

So that there, the Court was being asked to decide a question without the aid of the -- of the regulation and the history which we have here.

And the third thing about that case was that the aspect of destruction of business, I think, was not central to the case.

I think that if Dr. Heininger's business had not been destroyed, but just been seriously affected, but it -- they didn't stop all this math only part of this mess, the decision of the Court would've been the same.

And certainly, since -- decision of the Court went on the ground that the -- that the postal fraud statutes did not require the disallowance of his litigation expenses.

And that would've been true whether his -- his business was destroyed or whether his business was only seriously affected.

So that on the whole I think that the Heininger case does not control this case.

I don't deny it has a bearing on the case -- on the case, but I think it doesn't control the case.

The -- back for a moment to the issue of the matter of tax equilibrium if I may be pardoned to use that shorthand expression.

I would like to -- to point out one further thing that I think failed to make clear to the Court, and that is that in this day and age when there are an awful lot of initiatives and referenda throughout the country on all matters of importance involving matters of taxation, matters of regulation, matters in which the public is -- is largely concerned and then -- which industries are concerned.

What you will have if businesses can deduct their publicity campaigns is a great advantage to the larger businesses which have -- which have better -- which have higher rates of taxation and therefore get a greater benefit from their expenditures, that is --

Justice Charles E. Whittaker: (Inaudible)

Mr. Oscar H. Davis: Yes, Mr. Justice Whitaker.

The Government would pay 52% of the cost --

Justice William O. Douglas: Well, that's -- that's through the case of a corporation that is defended in its trust suit.

Mr. Oscar H. Davis: That is true.

But the -- but the person on the other side there is the Government.

On the other side here, there are other businesses maybe or private citizens who also have an interest as private -- as citizens in the adoption or defeat of the proposed legislation.

And it's not only -- if the corporation, if that's true, with individual taxpayers, it may be even 70% to 80% of the Government would bear in -- in -- and we think this is an important factor that this is not an issue which relates only to this particular tax.

But it also relates to things as the -- as the Court knows are going out throughout the country today that is more and more, these issues are coming before the public in initiative and in referenda.

And they're very important issues relating to taxation and -- and business regulation.

And great sums of money are -- are being expended and having expended in the past for promotion or defeat of this various projects.

Justice Potter Stewart: Well --

Mr. Oscar H. Davis: I don't say there's anything wrong about this.

There isn't anything wrong except into far as -- as it may violate a particular statute or regulation of the State or the Federal Government.

Justice Potter Stewart: They are very few, wouldn't you say, and neither one of us knows, but wouldn't you guess there are very few of these referenda that have the effect of absolutely destroying somebody's business?

Mr. Oscar H. Davis: I think in the liquor industry, maybe all really.

And that's another fact that I'd like to say.

These people are in the liquor industry.

The liquor industry has historically been subject to -- to regulation and prohibition more than any other industry.

They ought --

Unknown Speaker: Yes.

Mr. Oscar H. Davis: I should -- to put it perhaps rather bluntly and crudely.

It's the one industry that has to expect this kind of thing in -- in the future.

So that I don't think that if I -- if any industry has to be singled out for bailing out with respect to this, that it's the liquor industry that should be singled out because both prior to -- to prohibition -- during prohibition and certainly under the 21st Amendment, the -- the liquor industry knows that it's going to have face and it does face regularly these various attempts to -- to change and -- and --

Justice John M. Harlan: You said the argument --

Mr. Oscar H. Davis: Pardon?

Justice John M. Harlan: I said that argument cut against you.

Mr. Oscar H. Davis: You -- you mean that they ought -- that -- that --

Justice John M. Harlan: You made in ordinary expense.

Mr. Oscar H. Davis: Well, I don't deny that perhaps it does make it more of an ordinary expense.

But I -- I think that perhaps it indicates the -- the kind of capital expense which can't be considered an ordinary expense that -- it's something that they have to take into account and appreciate over the years rather --

Chief Justice Earl Warren: We'll recess now, Mr. --