![]() ![]() ![]() The Welch case is frequently cited for its dictum describing the meaning of the term "necessary" in Section 162 as requiring that expenses merely be "appropriate and helpful the development of the business." Helvering, the United States Supreme Court found that payments must be both ordinary and necessary to be business expenses it held that although payments made to a creditor by a taxpayer may have been necessary, they were not ordinary because the circumstances under which they were paid were outside the norms of conduct in society. Ordinary does not require be habitual or made often the court only requires that the expense is one that is ordinary and necessary for that business. In general, the expense should be routine and directly related to the business activity. These elements have been interpreted by the courts and administrative agencies to determine if an expenditure is deductible as a business expense. It must be anġ) ordinary 2) and necessary 3) expense 4) that was paid or incurred during the taxable year 5) in carrying on 6) a trade or business activity. Section 162(a) requires six different elements in order to claim a deduction. If an expense is not deductible, then Congress considers the cost to be a consumption expense. It is one of the most important provisions in the Code, because it is the most widely used authority for deductions. It concerns deductions for business expenses. § 162(a)), is part of United States taxation law. Section 162(a) of the Internal Revenue Code ( 26 U.S.C.
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