Smith v. Commissioner
40 B.T.A. 1038, 1939 BTA LEXIS 756 (1939)
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Rule of Law:
Expenses incurred for child care, even if necessary to enable a parent to work and earn income, are considered non-deductible personal expenses under the tax code, as they are part of the ordinary and personal aspects of family and household life.
Facts:
- The petitioners are a married couple, a husband and wife, who were both employed.
- The wife employed nursemaids to care for their young child.
- Petitioners claimed a deduction on their 1937 income tax return for the sums spent on these nursemaids.
Procedural Posture:
- The Commissioner of Internal Revenue determined a deficiency of $23.62 in petitioners’ 1937 income tax.
- This deficiency was due to the disallowance of a deduction claimed by the petitioners for sums spent on employing nursemaids.
- Petitioners filed a petition with the United States Board of Tax Appeals to contest the Commissioner's determination.
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Issue:
Does the cost of employing nursemaids to care for a taxpayer's child, incurred to allow the taxpayer-spouse to work and earn income, qualify as a deductible business expense under the income tax law, or is it a non-deductible personal expense?
Opinions:
Majority - Opper
No, the cost of employing nursemaids to care for a taxpayer's child, even if necessary to allow the taxpayer-spouse to work and earn income, does not qualify as a deductible business expense, but rather constitutes a non-deductible personal expense. The court rejected the petitioners' 'but for' test, which argued that without the nursemaids, the wife could not work, and thus no income would be generated. The court viewed such an argument as overbroad, noting that by the same logic, costs for doctors, clothing, shelter, or food, all essential for earning income, would also be deductible, yet these are expressly denied as personal expenses under the Revenue Act of 1936, section 24(a). The care of children, like other aspects of family and household life, is fundamentally a personal concern. While a wife's services as a homemaker and child caregiver are typically uncompensated and do not generate taxable income (citing Rosa E. Burkhart), her choice to employ others to perform these domestic functions, even while she earns income outside the home, does not transform these costs into business-related expenses. The court acknowledged that certain normally personal disbursements can become deductible due to a direct connection with a profit-seeking occupation (e.g., entertainment, travel, an actor's wardrobe). However, it distinguished these by drawing a line between activities that are 'ordinary' or usual as the direct accompaniment of business pursuits, and those that are 'personal in their nature, of a character applicable to human beings generally, and which exist on that plane regardless of the occupation.' Payments made to servants or nursemaids, as referenced in David Sonenblick, fall into this latter category of looking to the personal wants of employers.
Analysis:
This case is a landmark decision in tax law, solidifying a strict interpretation of the distinction between deductible business expenses and non-deductible personal expenses. It establishes the principle that expenses arising from fundamental human needs or family obligations, even if indirectly enabling income-generating activities, are generally non-deductible. The ruling highlights the judiciary's reluctance to broaden the scope of business deductions without explicit legislative direction, particularly for expenses that primarily benefit the taxpayer's personal life. This precedent continues to influence the treatment of various 'work-related' personal expenses, reinforcing the notion that personal choices, such as having children, lead to personal costs not subsidizable through tax deductions.
