Commissioner of Internal Revenue v. Sullivan

PETITIONER: Commissioner of Internal Revenue
LOCATION: Shotwell Manufacturing Co.

DECIDED BY: Warren Court (1957-1958)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 356 US 27 (1958)
ARGUED: Jan 30, 1958
DECIDED: Mar 17, 1958

Facts of the case


Media for Commissioner of Internal Revenue v. Sullivan

Audio Transcription for Oral Argument - January 30, 1958 (Part 2) in Commissioner of Internal Revenue v. Sullivan

Audio Transcription for Oral Argument - January 30, 1958 (Part 1) in Commissioner of Internal Revenue v. Sullivan

Earl Warren:

Number 119, Commissioner of Internal Revenue versus Neil Sullivan, Grace Sullivan, James Ross et al.

Mr. Solicitor General.

J. Lee Rankin:

Mr. Chief Justice, may it please the Court.

This case involves a book majors expenses.

It involves the question of payments made for the expressed purpose of inducing the commission of a crime.

The amounts involved are for three years, 48, 49 and 50, about 19,000 wages paid to men who record the bets, and 8700 approximately of rent for the first year and a total of about 32,000, below 32,000 for each of the subsequent years.

The payments are in violation of the statute of Illinois.

The bookmaking establishment was operated in the central business district of Chicago in a hotel.

It moved around a number of times because the police caught up with it or interfered with its activities.

And the hotel owner furnished a new location in the same hotel and there's a direct finding that the hotel owner knew that these premises was being used for the particular purpose.

There's a direct finding by the Court that it was in violation of statutes 336 and 582 of the State of Illinois.

But if the landlord is sued for (Inaudible)

J. Lee Rankin:

Could recover?

I -- I question in this particular situation.

There are some Illinois cases referred to in the petition -- in the respondent's brief in which they -- the Court dealt with the question.

But there, it was a question of suit between the parties which is a different problem under Illinois law, one thing.

And secondly, it was a question of whether he leased the particular premises rather than, whether he permitted the use of the premises.

Now, I -- I haven't found any Illinois case to the effect that if he permitted the use of the premises, he could recover.

And one of the cases cited by the respondents distinguishes particularly between that language of leasing or permitting the leasing or rent and permitting the use, which is the word of the statute called attention to the difference.

The particular statute involved is set forth on the -- in the Government's brief on page 3.

And the language that we think was violated and that the Court agreed and found particularly, runs down to the seventh, the eighth line or any person who records or registers bets or wagers or sells pools.

Now, the acts that these men were paid for were specifically found to be the registering of bets or wagers.

Then, you follow down the same statute about six lines where it reads or being the owner, lessee or occupant of any room shared tenement, tent booth or building or part thereof, knowingly permits the same to be used or occupied for any of these purposes.

Then, on the following pages, Section 582, which is the regular accessory statute and provides the liability in that event.

Now, there is no question of what this was -- it satisfied the requirements and accessory too, but there are the particular violations of the law of Illinois that's involved here, excuse me, and the payment was made for the deliberate and expressed purpose of having these crimes committed.

So, we comment within this general doctrine referred to by the Court in Lilly, where the expenditures are made themselves in violation of the law.

Now, the Court of Appeals reversed the case and held that the expenses were deductible on the ground of their Doyle decision, an earlier case similar -- very large with similar facts, on the theory that where the particular expenses were an integral part of the business operation, they were deducted, but if they were concomitant an they're referred to fines and penalties as concomitant, an example of concomitant, then they would not be.

Now, when you get down to it, it's an almost impossible rule to try to apply anything of that character.

If you would try to apply it, for instance, in your Textile Mills case of this Court, it seems to us that you would have to hold that the regulation in that case which prohibited a deduction for lobbying could not be valid even though it frustrated a clearly defined public policy, because the whole purpose of that activity was to lobby to the Congress a return of these assets.

And they had to hire somebody to do it and they hired their only logical people to do it, the publicist and two lawyers, but this Court said, "The regulation was valid.