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Mason and Dixon Lines, Inc. v. United States

708 F.2d 1043 (1983)

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Mason and Dixon Lines, Inc. v. United States

United States Court of Appeals for the Sixth Circuit
708 F.2d 1043 (1983)

JC

Facts

Mason and Dixon Lines, Inc. (M-D) (plaintiff) was a Tennessee trucking company that had, on several occasions between 1971 and 1975, trucks cited in Virginia for being overweight. Accordingly, M-D had paid fines, court costs, and liquidated damages on those occasions to keep M-D’s freight-hauling privileges in those Virginia jurisdictions. In 1975, M-D claimed the court costs and liquidated damages on its federal income tax return as ordinary and necessary business expenses pursuant to 26 U.S.C. § 162(a). The Commissioner of Internal Revenue, on behalf of the federal government (defendant), disallowed the deductions and assessed deficiencies. M-D paid that assessment, filed amended returns, claimed the amounts paid from 1971 to 1974 as deductions, and then filed suit for refunds. At the trial court level, the court found for the government, ruling that the damages from the weight violations were not necessary expenses. The logic was that M-D could have easily avoided the expenses by not violating the weight laws. M-D appealed, noting that prior caselaw had allowed a taxpayer convicted of fraud to claim settlement payments and legal expenses as ordinary and necessary business expenses.

Rule of Law

Issue

Holding and Reasoning (Lively, J.)

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