## Facts

- Jack Surasky bought 4,000 shares of Montgomery Ward & Co. common stock in 1954–1955 for $296,870.20 as a long-term investment expecting increased dividends and stock appreciation.
- After Louis E. Wolfson and other shareholders failed to secure management’s acceptance of operational changes, they formed the Wolfson–Montgomery Ward Stockholders Committee to seek major management and policy reforms.
- The Committee pursued a proxy contest to elect new directors and replace top management, advocating broad operational and financial changes intended to improve corporate performance.
- In 1955, Surasky paid $17,000 to the Committee to fund proxy-contest expenses.
- The Committee achieved partial success, including electing some nominees to the board and prompting resignations of senior executives.
- Surasky later received roughly $30,000 in dividends and realized a $50,929 capital gain upon selling the stock.
- Surasky claimed the $17,000 as a nonbusiness deduction under I.R.C. § 212; the IRS disallowed it, and the district court denied a refund.

## Issues

1. Whether a shareholder’s payment to a stockholders’ committee to finance a proxy contest aimed at improving management and corporate performance is an “ordinary and necessary” expense for the management, conservation, or maintenance of income-producing property deductible under I.R.C. § 212.

## Decision

- The Fifth Circuit reversed the district court.
- The court held the $17,000 payment was deductible under I.R.C. § 212(2) as an ordinary and necessary expense for the management, conservation, or maintenance of property (stock) held for the production of income.

## Legal Principles

- I.R.C. § 212 permits individuals to deduct ordinary and necessary expenses paid to manage, conserve, or maintain property held for the production of income.
- A shareholder’s proxy-contest expenditures may qualify under § 212 when their purpose is investment-related—protecting or improving an existing income-producing holding—rather than personal, political, or unrelated to income production.
- Expenses directed at influencing corporate management to protect or enhance the value and income potential of stock can be treated as current § 212 expenses rather than non-deductible personal spending or capital outlays to acquire a separate asset.
- The inquiry focuses on the relationship between the expenditure and the taxpayer’s income-producing property and objective of preserving or increasing income; deductibility does not depend on success, though results may confirm the expenditure’s investment character.

## Conclusion

The court allowed a deduction under § 212 for a shareholder’s contribution to fund a proxy contest because it was an ordinary and necessary expense incurred to manage and conserve an existing stock investment held for the production of income.


Surasky v. United States, 325 F.2d 191 (5th Cir. 1963)