Woodward v. Commissioner

LOCATION:17th Judicial Circuit Green County Alabama Jury Commission

DECIDED BY: Burger Court (1969-1970)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 397 US 572 (1970)
ARGUED: Feb 26, 1970
DECIDED: Apr 20, 1970

Facts of the case


Audio Transcription for Oral Argument – February 26, 1970 in Woodward v. Commissioner

Warren E. Burger:

Number 412, Woodward against the Commissioner of Internal Revenue.

Mr. Cooney you may proceed whenever you’re ready.

Donald P. Cooney:

Thank you, Your Honor.

This case is here on certiorari to the Eighth Circuit.

It is an income tax case involving the question of whether the cost of a stock appraisal proceeding held in connection with the extension of a corporation’s charter are ordinary and necessary expenses incurred for the production — excuse me, ordinary and necessary expenses incurred for the management of property held for the production of income and are thus deductible, or in the alternative whether they are capital expenditures paid relevant to the acquisition of title to corporate stock and thus nondeductible.

In other words, this Court is asked to characterize for income tax purposes money spent by the taxpayers as majority shareholders for professionals services rendered in a litigation arising under a state appraisal statute wherein the only issue in the equitable action was the real value and in some states its fair value of the dissenting shareholders stock.

The character of this deduction so far as the taxpayers maintain is to be determine under Section 212 (2) of the present code.

This is a successor to the so-called nonbusiness deduction section that was added by the 1942 Revenue Act which this Court in 1965 was called upon to interpret in the Gilmore case.

Mechanical, Section 212 (2) deduction would have been taken on last year’s income tax return that would be the one for 1968 on page 2 of 1040 under itemized deductions under this Section entitled Miscellaneous.

This year under the new forms it would be a deduction on the schedule entitled Itemized Deductions under Miscellaneous Deductions.

In this particular instance the taxpayer are majority shareholders.

The majority shareholders are people the petitioners if this are otherwise in the companion case.

The factual situation involved herein was precipitated and it is completely controlled by the Iowa renewal statute.

If you want wish to refer to it like at this particular time if you refer turn into page 23 of the appendix there are excerpts of the opinion of the Iowa Supreme Court and the last paragraph on that particular page contains the perhaps of the statute.

This is a little bit different in most case.

This is not by way of the apology but Iowa’s corporate law link to something to be desired relative to speed in adopting changes.

What would happen in Iowa if the stockholders did not purchase the stock to the dissenters?

Donald P. Cooney:

They — that is the State of Iowa has adopted the partnership theory of the corporation.

This is a corporation for a term of years — a term of 20 years at the end of 20 years it would have been dissolved because this is a contract.

As I understand it, it goes back to the case that Dartmouth College case versus Woodward and the case is subsequent thereto that hold that it is the corporate charter is a contract between the stockholders and between the corporation and the state, and between the state and the stockholders, a three-way type contract.

This is important because at that particular time if the dissenting shareholder had not purchased the time had not — I beg your pardon, under the common law if this statute wasn’t here because of the unanimity of consent rule.

In other words, this was a contract based upon a partnership law and everybody had to agree to terminate the corporation because she had entered the dissenting shareholder.

He had entered the agreement, the contract, the business venture to go for 20 years and it could not be stock unless there was some reason relative to it was better — it would be better for the investment to terminate it.

Then there is law that would indicate that you could then but she had agreed, everybody had agreed to go to 20 years and this is what the Iowa statute has been for me is initially from 1851 until the middle of the decade of 40’s but that was just immediately prior to the last renewal for 20 years of this corporation.

The context this Iowa law the taxpayers are residents of Iowa.

The corporation happens to be a newspaper corporation, that once a radio station.

The taxpayers control approximately 70% of the shares of stock.

The dissenter owned approximately 30%.

The evidence shows that there hadn’t been an offer or a sale of this stock at least to 1950 that is the evidence in the valuation case, the petitioner of which in the Supreme Court decision are included in the appendix.

So the corporate charter was due to run out in December of 1961 having been renewed for a term of years in December 1941.

Donald P. Cooney:

That a meeting was held with notice to the given, etcetera that on June 9, 1960 the dissenting shareholder voted against the resolution to extend the corporation’s charter.

Now, Iowa has adopted the statute which has show on page 32 — 23 of the appendix 49125 and it was adopted abrogate the common law rule of unanimous consent whereby everybody had agree to every fundamental change.

Incidentally, in Iowa the extension of a corporations life is considered a fundamental change, this is otherwise in most states, in other words the Model Corporation Act indicates in its annotation there’s only three other States that consider the extension of a corporation’s life is a fundamental change to finance the problem and to increase economic activity and to proceed toward the investor management theory of corporations which will would be involved in the next case.

The States generally change or adopt the statute that will adopt the majority rule but they were concerned that they would run smack into the Due Process Clause only to the protection of contractual rights.

So as a compromise to finance the problem they granted appraisal rights.

In other words, here you started (Inaudible) shareholder in 1941.

As a stockholder we agreed to go to 1961.

We want to extend the life of the corporation.

You want out, alright, under the common law she’d have to continue to the end, it would be to the end and everything would be divided up pro rata and of course with the income tax consequences that would arise from dissolving the corporation.

Then in return for year for letting me continue we will give an appraisal right, fine.

All right now, in Iowa this appraisal right is a finding of value.

No judgment is I asked and if for instance in this particular case if the majority stockholders had not paid the defendant — excuse me, the dissenter dissenting show or whatever it would have to sue on the judgment, it’s important.

In other words all this is, is a judicial determination of value, this is a closely-held corporation.

The dissenter says it worth (Inaudible) and this is exactly what happen and the majority shareholders says would nothing and there is a judicial determination and this case with the evidence took about five or six weeks and then it went up to the Supreme Court and was lowered and on rehearing it was lowered again.

Then she was paid in 1965.

Now, the Iowa court has held that this is the statute extending the life of a corporation is not a sale and purchase transaction.

It is a method whereby the dissenting shareholder is allocated her adequate share of the corporation’s assets.

In other words, if there were a thousand shares during December of 1941 she paid $7,000.00 for her shares — excuse me, $3,000.00 for her shares.

The majority shareholders paid $7,000.00 for theirs.

Twenty years later, when it’s evaluated what is she entitled too?

Any increase, she is entitled of 30% of any increase.

It is not a sale or purchase taxation.

As a matter of fact we were advocating we represented in valuation case the majority shareholders.

We were advocating strenuously that the stock should be discounted because it represented a minority interest and or because if not that then because there would be a broker’s commission taken in the use of course of business.

Now, those theories of course arise under the fair market value cases under the — generally under estate and gift taxes.

But the Supreme Court of Iowa would have nothing to do with that argument they said what he or she entitled to if she would have continued?

There being two of course the question arises how are these expenses to be determined.

It’s our understanding, the taxpayers’ understanding that there are two questions that are involved.

The first question is whether or not this is a personal expense of the payor, the taxpayer or expense that arises in a profit-seeking venture.

This Court’s case of Gilmore enumerated the test that’s now referred to us the origin and character test that is to determine whether or not a particular expenditure is a personal expense or therefore nondeductible because of the prohibition in the code, or whether or not it would be any expense that would come under 212 as a management expense or expenditure relative to property or for the production of income.

Donald P. Cooney:

It would seem without — by just reviewing the facts or situations that this is not a personal expense.

This are — this is in a profit seeking status or venture or context.

The next test is whether or not the item — the expenditure is an expense that would be deductible or a capital expenditure.

Now, we are maintaining in the Iowa court, the Delaware court, the New Jersey court hold that this is a nature in this appraisal statute that is the fundamental change statutes that give us appraisal right are generally considered as accounting an action for an accounting.

In other words the dissenting shareholder says, “I am entitled to “X” number of dollars because the increase in the value or the decrease in the value.”

The majority shareholders say, “You are entitled to this much.”

They are required to account to the dissenting shareholder for the value of her interest in the corporation if she would have continued, in other words if she had wanted out.

Now, this Court in Gilmore relied on its origin and character test to determine whether or not a particular expenditure is a — is personal or not and therefore nondeductible upon — principally upon the Bingham Trust case.

Now, this case relied on the Kornhauser case.

The Kornhauser case arose in 1928.

It was a case — it was an income tax case course and then involved the deductibility — or whether or not an expense for an attorney defending against his ex-partner defending an accounting action brought by his ex-partner for the value of some stock that he allegedly had received there’s a fee after the partnership was dissolved but for services rendered while there was a partnership.

He was — that is the action in the action of accounting it was held that not withstanding that these fees were for the defense of property that is the defense of — the title to property that they were deductible.

This case was relied on in the Bingham Trust case was the second case that interpreted this particular Section.

If you — one who would lead the sections and the taxpayers’ brief, the blue one, we set out one section that was called the Internal Revenue Code of 1939 and the next section under the Internal Revenue Code in 1954 so you can see the comparison but the government and we’d certainly agree that essentially the law is the same under this Section even though the numbers are different.

I have chosen to divide at my argument this particular point.

Warren E. Burger:

Very well.

Mr. Walters.

Johnnie McKeiver Walters:

Mr. Chief Justice and may it please the Court.

As a corporate charter which was involved here was about to expire, the majority stockholders who voted to extend the charter and enlarge the powers of the corporation, Mrs. Quigley on 379 shares of the 1200 outstanding shares of the corporation, she voted against the extension and enlargement of the corporate charter.

With her having done that under the Iowa law the majority shareholders were required to purchase her stock and purchase it at its real value.

What’s the price value turn out to be?

Johnnie McKeiver Walters:

Sir, it’s started off in the initial proceeding.

In my recollection, it was $1,750.00 per share ultimately.

I think the final appraisal was $1,620.00 per share.

The majority shareholders had three years within which to purchase the stock.

In accordance with the Iowa law they comment these appraisal proceedings in the state court to determine the real value.

In that litigation they incurred attorney’s fees and other expenditures which they later sought to deduct under Section 212.

The Internal Revenue service denied the deduction.

The tax court affirmed that denial and the Eighth Circuit affirmed the tax court decision.

In determining whether the expenditures in this case are deductible for federal income tax purposes, we must look to Section 212 and Section 263 and to some of the leading court decisions.

Johnnie McKeiver Walters:

Section 212 provides that an individual may take a deduction where the ordinary and necessary expenses incurred during the taxable year for the management protection or maintenance of property held for the production of income.

This of course is a counterpart to Section 162 which provides for deduction of the ordinary and necessary expenses incurred and carrying on a trader business.

But here we are concerned with the individual provision which is Section 212.

Turning to Section 263 which deals with capital items we find this provision prohibits deduction of capital expenditures.

The costs of asset, tangible or intangible that have a life an excess of one year are capital costs.

They are nondeductible capital expenditures.

Some examples which the courts have recognized are the cost for acquiring or disposing of capital stock and the cost incurred in connection with corporate reorganizations.

There is no dispute here as to this basic substantive tax rules.

The dispute arises as to which of these rules is applicable in this case.

The Woodward’s content that Section 212 applies and provides for deduction of these expenditures.

The Government on the other hand contends that Section 263 is applicable and that deduction of these expenditures is prohibited.

The Woodward’s contention basically is if the appraisal cost or ordinary and necessary expenses incurred for the management or maintenance of property held for the production of income.

They would avoid Section 263 and the capital expenditure treatment but saying that the appraisal proceeding was solely for the purpose of determining the real value of the stock.

Potter Stewart:

That’s about the fact of the matter isn’t it?

It was determined the price in stock period?

Johnnie McKeiver Walters:

That was evolved.

Potter Stewart:

That was about their duty to purchase.

Johnnie McKeiver Walters:

That’s right Mr. Justice Stewart.

Potter Stewart:

And the only purpose of the proceeding was to determine the price?

Johnnie McKeiver Walters:

That was the purpose of the proceeding but we say Mr. Justice Stewart that this is not the whole picture that we must look beyond that.

We say that you cannot look just at that segment of the overall transaction and we think that to ask the Court to look at that fragment of the overall transaction is asking the Court to close its eyes to the entire picture.

This Court has provided precedents that help us in approaching this problem to distinguish between deductible expenses and nondeductible capital expenditures.

In the Gilmore case, already mentioned this morning, the Court held that the origin and the character of the obligation from which an expenditure arises determines the character of that organization of that – the expenditure.

In the Gilmore case, Mr. Gilmore was owner of three General Motors franchises.

He encouraged substantial expenditures in connection with a divorce actions started by Mrs. Gilmore.

He attempted to deduct those expenditures on the theory that an unsuccessful defense of the divorce action would have had substantial adverse effects upon his status and his businesses.

And that therefore, these expenditures were incurred to protect, manage, and maintain property held for the production of income.

He was victorious in the divorce action but this Court held that the character of the proceeding from which the payments came determine the origin and character and that therefore Mrs. Gilmore’s divorce action arose out of the personal relationship, the marital relationship and not out of any income-producing activity.

Accordingly, the expenditures were held to be nondeductible personal expenditures.

Now, while the Gilmore case involved the question of distinguishing between personal and business expenses we just think that nevertheless that this broad decision by this Court indicates a principle that can be applied in determining whether an expense incurred in an income-producing activity is a business expense or a deductible expense or a nondeductible capital expenditure.

Johnnie McKeiver Walters:

In this decision below in this case the Eighth Circuit looked at this overall transaction involving Mrs. Quigley stock and decided that this was a case — was a transaction involving the purchase of a capital stock?

Thus, this case is much like the case decided by this Court some 30 years ago in Helvering versus Winmill.

In that case, the taxpayer was engaged into buying and selling of securities.

He attempted to deduct the brokerage commissions he paid but the Court held, however, that the commissions constituted a part of the cost of acquisition of the securities purchased.

And that therefore, they were not deductible.

We say that there is much comparison between the brokers’ commissions in that case and the case and the expenditures incurred in this case.

Both were directly related to acquisition of capital asset and we see no sound reason to distinguish between the two merely because the amounts of each were calculated in a different way.

The Woodward expenditures here for this appraisal proceeding were part of the cost of acquiring Mr. Quigley stock.

Also in accordance with the statute requiring the purchase of that stock.

Byron R. White:

What you’re saying is the taxpayer had not been satisfied with the appraisal figure that resulted to proceeding and withdrew his dissent and the majority stockholders then wanted to deduct the expenses which he had incurred anyway.

Johnnie McKeiver Walters:

Well, then that —

Byron R. White:

He never did acquire — he never did acquire the dissenter’s stock?

Johnnie McKeiver Walters:

Right and that Mr. Justice White under Iowa law that could have occurred.

Byron R. White:

I know it could have.

Johnnie McKeiver Walters:

And in that case she would have gone along with the corporate extension.

I think at that time, possibly the majority stockholders would attempted to have deducted this expenditure or written it off as a capital items something that they had tried to do had failed although I’m not sure that that would have been justified because it was an expenditure still involved with this corporate statute.

Byron R. White:


Yes, do you think it would have been deductible at all under any theory?

Johnnie McKeiver Walters:

I think it would have been doubtful, yes sir.

Byron R. White:

Doubtful, what would be the possibility?

Johnnie McKeiver Walters:

Well, —

Byron R. White:

A capital loss?

Johnnie McKeiver Walters:

Well, possibly if they were going to be deductible possibly that but it seems to me that these expenditures were incurred to extend the life of the corporation and the life of this corporation even in this case would have been extended.

This would not have deprived them course an ultimate deduction because it would in such case have been added to the basis of their stock —

Byron R. White:

Let’s assume the —

Johnnie McKeiver Walters:

— to be recovered later.

Byron R. White:

Let’s assume the majority stockholder under the Iowa law has some duties with respect to getting the expense.

He has to hire a lawyer and he has to deal with the state and unless the life is extended while he is going to have to turn his stock and get some money back but he wants to retain his stock.

He doesn’t want the corporate charter day to expire.

He spends some money to make sure that corporate charter doesn’t expire so that he can keep his stock.

Byron R. White:

You wouldn’t think that expense is deductible?

Johnnie McKeiver Walters:

That’s presents a tougher question because in that case I think he can argue that he’s going along with it but that he is doing this to conserve and protect and manage —

Byron R. White:

Well, isn’t that what this whole operation here is all about?

No but he didn’t want to buy that minority stock.

The law made him buys it.

What his major purpose is to extend the life of the corporation so that he can go on holding his stock through which he earns income.

Johnnie McKeiver Walters:

That’s true but does not quite is involuntary as it sounds Mr. Justice White because when the majority stockholders voted to extend the corporate charter, they knew that if any stockholders dissented and voted against him, that they would be required.

Byron R. White:

Well, I understand that but nevertheless the thing that triggered this whole problem was the desire to extend the corporate charter and maintain as the stock ownership, right?

Johnnie McKeiver Walters:

That’s right, sir.

Byron R. White:

Why isn’t that the origin of this claim here?

Johnnie McKeiver Walters:

I think it is the origin sir.

I think that decision to extend it is the origin and I will come to that in just a moment but I think in addition to extending the life of the corporation for their own stock which is the case as I understand you present they here acquired some additional stock which is a little different sir.

Byron R. White:

Well, I would think that — let’s assume, again I’ll go back to the other example assume that the dissenter withdrew his dissent after these expenses have been incurred and he wants to deduct them as an expense incurred to maintain and safeguard his stock.

These expenses were necessary in order to extend the life of the corporate charter and to perpetuate his ownership of the stock.

Johnnie McKeiver Walters:


Byron R. White:

Why isn’t that a perfectly decent argument?

Johnnie McKeiver Walters:

I think it is a decent argument sir and particularly —

Byron R. White:

Just for a while.

Johnnie McKeiver Walters:

[Laughter Attempt] And particularly if they did not acquire something else but here there’s another staff they acquired some additional stock.

Byron R. White:

Well then my example, they didn’t anything.

Wouldn’t he say he could deduct that?

Johnnie McKeiver Walters:

That’s why I could agree with you on your example, sir.

Warren E. Burger:

Well, I didn’t understand you agreed with Justice White, you said that would be a harder question.

Johnnie McKeiver Walters:

I did initially but he convinced me during of course of the argument that if — Mr. Chief Justice, if they did this and did not acquire anything out which is the case we have here then I think a good decent argument can be made as Mr. Justice White presents it.

Byron R. White:

Well then why would be the expense changes carried to just because the dissenter didn’t withdraw?

I mean, it’s the same expense — it has its roots in the same transaction.

It maintains the same justification just because he suddenly gets some share doesn’t change the character of the expense, doesn’t it?

Johnnie McKeiver Walters:

I think it does sir.

I think that here we have an acquisition that we can’t ignore that.

The origin, tying in with the point of Mr. Justice White was making a moment ago, the origin we say of this appraisal proceeding was not the sole question of determining the real value.

Johnnie McKeiver Walters:

We think that if the origin lay in the decision to extend the corporate charter then the statute required the acquisition of these stocks.

So we say that our origin of this lay further back than just picking up after the corporate charter have been extended to view the appraisal proceeding as stemming from any other origin we think is to ignore the entire picture.

The character of the appraisal proceeding was set by the character of this overall transaction not just by the little question of what is the value of the stock.

The appraisal proceeding thus was part and parcel of the whole transaction.

It was an integral part that the fact the statute required the majority stockholders to purchase the stock and afforded the appraisal proceeding machinery does not change the character of the appraisal proceedings.

Now, the Woodward’s capitalized the stock.

They paid to Mrs. Quigley for her stock.

We see no difference between that and the amount of money have cost them to determine what that figure was.

It was a part of the total cost figure they paid for the stock.

Thus, under both the origin and character test and the cost of these appraisal proceedings must be considered capital expenditure.

The — when they finally purchased their stock, did they purchase it with other stock or with cash?

Johnnie McKeiver Walters:

Though she was getting out sir so —

Yes, I understand that.

Johnnie McKeiver Walters:

They paid for her stock.

Well then what in cash?

Johnnie McKeiver Walters:

In cash.

Cash, that’s what I thought so.

Warren E. Burger:

Before you go on.

Johnnie McKeiver Walters:

Yes, sir.

Warren E. Burger:

I know its place quite a bit of reliance both in your brief and your argument on Gilmore and I am having difficulty with that.

The Gilmore case is the whole expense was rooted in the disestablishment of the family — personal relationship.

Johnnie McKeiver Walters:

That’s right.

Warren E. Burger:

No business roots in that though and I don’t see how that helps you.

Johnnie McKeiver Walters:

We think it helps Mr. Chief Justice and that is shows a guideline.

It shows how you approach the question.

Certainly, we agree with you that the Gilmore case is not directly in point but we think it is a light that shows us how to approach this question.

Warren E. Burger:

Now, it doesn’t give me much light on the problem which is essentially a business investment problem.

The maintenance and conduct of investments for profit on no matter how I see, you don’t place much reliance on it then?

Johnnie McKeiver Walters:

Except as a guide, that’s right sir.

We do not say that it’s directly in point.

Johnnie McKeiver Walters:

The result for which we are here that these expenditures constitute capital expenditures cannot be avoided by reference to the primary purpose test which has been mentioned in many court decisions and also argue to this Court.

That test comes into play when litigation involves a defense or protection of title.

In the appraisal proceedings in this case however, it was no question about who own title.

Title, question of title was not involved.

Therefore as the Eight Circuit pointed out in its decision the primary purpose test does not come to play in this case.

Even if it did however, we could not agree with the Woodward’s as to the primary purpose of these appraisal proceedings.

In determining that purpose, we would say as we mentioned earlier Mr. Chief Justice that we have to look at the entire transaction, the overall transaction not at just one little piece of it.

The tax law does not allow us to fragment the events that are related.

Thus, we said that the primary purpose of this was to complete the acquisition of Mrs. Quigley stock which was a part of the overall transaction.

The fact that the appraisal proceedings came after Mrs. Quigley was deprived of her stockholder right was immaterial.

The tax law as I indicated a moment ago does not allow us to separate events that are functionally related.

It not only does not allow it, it prohibits us from fragmenting events that are related when to do so would not achieve a proper tax result.

Thus, we say that the timing of this appraisal proceeding in relation to other events in this integrated picture is not critical but we say that the functional relationship of these events, the appraisal proceeding, acquisition of the stock, that they are very definitely and directly related and critical.

The Woodward’s have argued extensively that in this case the stock owned by Mrs. Quigley passed essentially to the majority stockholders prior to the appraisal proceeding.

With this, we do not agree for the reasons stated in the incision of the Eighth Circuit and even if it were so we would say that this does not make any critical difference in this case.

The timing of the events which are directly related should not be critical in determining what the tax consequences are one of the little fragment is.

And so we say here that even though this appraisals proceeding preceded or followed the transfer of title, it makes no difference.

Warren E. Burger:

Thank you Mr. Walters.

Mr. Cooney.

Donald P. Cooney:

The Government persists on making an analogy with the expenses of the appraisal the litigation in the Iowa State Court with brokerage fees and cites Winmill case.

In that case, we don’t — the result of that case we have no quarrel with.

But the brokerage fees were incurred to find a seller for a buyer or a buyer for a seller.

This is not what’s involved here.

If you pick up your telephone and want to buy 100 shares AT&T you don’t discuss usually the value of AT&T with your broker.

He executes the order, this is what he does.

If this is their thinking that this is what went on in that case nothing could be further from the truth.

It was not a search for a buyer.

There was one that was brought about by the extension statute itself.

The second point we would like to make is they insists in dividing these or exists in joining the two actions that is the two elements of this.

One, the extension of the life of the corporation by the special meeting of the shareholders and the evaluation proceeding.

Donald P. Cooney:

Obviously, the evaluation proceedings wouldn’t have occurred but for the shareholders’ action in renewing the corporation’s charter.

We would take the case of Apsey versus Kimball of this Court which appears at link in our brief on page 15, 16 and 17.

This it would seem this case are arose in 1911.

It would seem that this would take care of this once and for all.

The Iowa court quotes — or excuse me, the Iowa court cites this case in its dissenting opinion in the case entitled Terrell versus Ringgold which was to the Supreme Court for an interpretation a various aspects of this evaluation and renewal statute.

In that, they held without doubt, without controversy that there is two transactions that the title passes under statutes like this when the vote is taken simply because these appraisers — appraisal statutes are in obligation of the common law and have to be strictly construed.

What does it do?

If you get out of the business, then you can have your — in exchange for that the state will grant you the right to dissenting shareholder the right to have their shares appraised.

In this particular instance, under the common law if there was in the statute the whole venture would have terminated at the end of the 20 years in any event.

But this case arising under a statute that creates a federal banking corporation and was cited by the Iowa court as comparable to our particular statute sets adrift his argument, the Government’s argument relative to this business that is all one transaction that we recognized this business that one wouldn’t have happen but for the other one.

The case — we have no quarrel with the Government in their citing and using the Gilmore case to determine whether or not this is a personally expense or an expense or an expenditure that is in a profit-seeking context — arose in a profit-seeking context but it can’t going on further than that.

This Court in its Bingham Trust case which is based upon the Kornhauser case enumerated the approximate cost test which it approved in the Gilmore case which very easily is — takes care of the problem and would indicate that the deductibility here would arise under the Section 212 of the 1954 Code.

Warren E. Burger:

Thank you Mr. Cooney.

Thank you Mr. Walters.

The case is submitted.