30 Opinion of the Court. cost of compliance against the chance of detection. Such a course cannot be sanctioned, for judicial deference to state action requires, whenever possible, that a State not be thwarted in its policy. We will not presume that the Congress, in allowing deductions for income tax purposes, intended to encourage a business enterprise to violate the declared policy of a State. To allow the deduction sought here would but encourage continued violations of state law by increasing the odds in favor of noncompliance. This could only tend to destroy the effectiveness of the State's maximum weight laws. This is not to say that the rule as to frustration of sharply defined national or state policies is to be viewed or applied in any absolute sense. "It has never been thought... that the mere fact that an expenditure bears a remote relation to an illegal act makes it nondeductible." Commissioner v. Heininger, supra, àt 474. Although each case must turn on its own facts, Jerry Rossman Corp. v. Commissioner, 175 F. 2d 711, 713, the test of nondeductibility always is the severity and immediacy of the frustration resulting from allowance of the deduction. The flexibility of such a standard is necessary if we are to accommodate both the congressional intent to tax only net income, and the presumption against congressional intent to encourage violation of declared public policy. Certainly the frustration of state policy is most complete and direct when the expenditure for which deduction is sought is itself prohibited by statute. See Boyle, Flagg & Seaman, Inc., v. Commissioner, 25 T. C. 43. If the expenditure is not itself an illegal act, but rather the payment of a penalty imposed by the State because of such an act, as in the present case, the frustration attendant upon deduction would-be only slightly less remote, and would clearly fall within the line of disallowance. Deduction of fines and penalties uniformly has been held Opinion of the Court. 356 U.S. to frustrate state policy in severe and direct fashion by reducing the "sting" of the penalty prescribed by the state legislature." There is no merit to petitioner's argument that the fines imposed here were not penalties at all, but merely a revenue toll. It is true that the Pennsylvania statute provides for purchase of a single-trip permit by an overweighted trucker; that its provision for forcing removal of the excess weight at the discretion of the police authorities apparently was never enforced; and that the fines were devoted by statute to road repair within the municipality or township where the trucker was apprehended. Moreover, the Pennsylvania statute was amended in 1955, raising the maximum weight restriction to 60,000 pounds, making mandatory the removal of the excess, and graduating the amount of the fine by the number of pounds that the truck was overweight. These considerations, however, do not change the fact that the truckers were fined by the State as a penal measure when and if they were apprehended by the police. Finally, petitioner contends that deduction of the fines at least for the innocent violations will not frustrate state policy. But since the maximum weight statutes make no distinction between innocent and willful violators, state policy is as much thwarted in the one instance as in the other. Petitioner's reliance on Jerry Rossman Corp. v. Commissioner, supra, is misplaced. Deductions were See, e. g., United States v. Jaffray, 97 F. 2d 488, aff'd on other grounds, sub nom. United States v. Bertelsen & Petersen Engineering Co., 306 U. S. 276 (1939); Tunnel R. Co. v. Commissioner, 61 F.2d 166; Chicago, R. I. & P. R. Co. v. Commissioner, 47 F. 2d 990; Burroughs Bldg. Material Co. v. Commissioner, 47 F. 2d 178; Great Northern R. Co. v. Commissioner, 40 F. 2d 372; Davenshire, Inc., v. Commissioner, 12 T. C. 958. Purdon's Pa. Stat. Ann., 1953 (1957 Cum. Ann. Pocket Part), Tit. 75, § 453. 30 Opinion of the Court. allowed the taxpayer in that case for amounts inadvertently collected by him as OPA overcharges and then paid over to the Government, but the allowance was based on the fact that the Administrator, in applying the Act, had differentiated between willful and innocent violators. No such differentiation exists here, either in the application or the literal language of the state maximum weight laws. Affirmed. 356 U.S. Opinion of the Court. HOOVER MOTOR EXPRESS CO., INC., v. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT. No. 95. Argued January 29-30, 1958.-Decided March 17, 1958. Fines paid by a truck owner for inadvertent violations of state maximum weight laws are not deductible as "ordinary and necessary" business expenses under § 23 (a) (1) (A) of the Internal Revenue Code of 1939. Pp. 38-40. (a) In this case, it does not appear that the truck owner took all reasonable precautions to avoid the fines. Pp. 39-40. (b) Even assuming all due care and no willful intent, allowance of the deduction would severely and directly frustrate state policy. P. 40. 241 F. 2d 459, affirmed. Judson Harwood argued the cause and filed a brief for petitioner. Solicitor General Rankin argued the cause for the United States. With him on the brief were Assistant Attorney General Rice, Joseph F. Goetten and Meyer Rothwacks. 1 MR. JUSTICE CLARK delivered the opinion of the Court. The sole issue here the deductibility for tax purposes of fines paid by a trucker for inadvertent violations of state maximum weight laws-is identical to one of the 1"SEC. 23. DEDUCTIONS FROM GROSS INCOME. "In computing net income there shall be allowed as deductions: "(a) EXPENSES. "(1) TRADE OR BUSINESS EXPENSES. "(A) In General.-All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or busi53 Stat. 12, as amended, 56 Stat. 819. ness 38 Opinion of the Court. issues decided today in No. 109, Tank Truck Rentals, Inc., v. Commissioner, ante, p. 30. Most of the overweight fines paid by petitioner during 1951-1953 inclusive, the tax years in question, were incurred in Tennessee and Kentucky, two of the nine States in which petitioner operated. During the relevant period, both Tennessee and Kentucky imposed maximum weight limitations of 42,000 pounds over-all and 18,000 pounds per axle,' considerably less than those in the other seven States. Petitioner's fines resulted largely from violations of the axle-weight limits rather than violations of the over-all truck weight limits. The District Court found that such violations usually occurred because of a shifting of the freight load during transit. After paying the taxes imposed, petitioner sued in the District Court for a refund, claiming that no frustration of state policy would result from allowance of the deductions because (1) the violations had not been willful, and (2) all reasonable precautions had been taken to avoid the violations. The District Court held that even if petitioner had acted innocently and had taken all reasonable precautions, allowance of the deductions would frustrate clearly defined state policy. Judgment was entered for the Commissioner, 135 F. Supp. 818, and the Court of Appeals affirmed on the same reasoning. 241 F. 2d 459. We granted certiorari, 354 U. S. 920 (1957), in conjunction with the grant in Tank Truck Rentals, Inc., v. Commissioner, supra, and Commissioner v. Sullivan, ante, p. 27, both decided today. Wholly apart from possible frustration of state policy, it does not appear that payment of the fines in question was "necessary" to the operation of petitioner's business. This, of course, prevents any deduction. Deputy v. 2 Ky: Rev. Stat., 1953, § 189.222; Williams' Tenn. Code, 1934 (1952 Cum. Supp. to 1943 Repl. Vol.), § 1166.33. |