## Facts

- Tank Truck Rentals, Inc., a Pennsylvania corporation, leased tank trucks with drivers to motor carriers transporting bulk liquids.
- In 1951, several states imposed maximum vehicle weight limits; Pennsylvania’s limit was 45,000 pounds, while nearby states allowed limits near 60,000 pounds.
- Tank Truck’s equipment commonly used 4,500–5,000-gallon tanks, and industry rates generally assumed fully loaded operation.
- Given the weight of the liquids transported, fully loaded trucks typically exceeded Pennsylvania’s 45,000-pound limit.
- Tank Truck asserted it could not operate profitably while complying with Pennsylvania’s limit and chose to run trucks at full capacity and accept the risk of enforcement.
- During 1951, the company paid (or reimbursed drivers for paying) about $40,000 in fines for weight-limit violations, including 718 willful violations and 28 characterized as “innocent.”
- The company deducted the fines as “ordinary and necessary” business expenses under § 23(a)(1)(A) of the Internal Revenue Code of 1939.
- The Commissioner disallowed the deductions on public policy grounds; the Tax Court and the Third Circuit upheld the disallowance.

## Issues

1. Whether fines paid for violating state maximum weight laws are deductible as “ordinary and necessary” business expenses under § 23(a)(1)(A) of the Internal Revenue Code of 1939.
2. Whether deductibility depends on whether the violations were willful or unintentional.
3. Whether allowing the deduction would frustrate sharply defined state policy embodied in penal statutes.

## Decision

- The Supreme Court affirmed the judgment denying the deductions.
- Fines imposed for violating state truck-weight limits were not deductible as “ordinary and necessary” business expenses.
- The Court applied the same rule to both deliberate and unintentional violations because the state statutes did not distinguish between them.
- Allowing the deductions would directly reduce the deterrent effect of state-imposed penalties and thereby frustrate state policy.

## Legal Principles

- An expense cannot be treated as “necessary” for federal income tax deduction purposes when allowing the deduction would frustrate “sharply defined” national or state policies evidenced by governmental declarations, including penal statutes.
- The public-policy limitation is fact-dependent; the test for nondeductibility turns on the severity and immediacy of the frustration that would result from the deduction.
- State-imposed fines for unlawful conduct are punitive rather than a “toll” or business charge; deducting them would diminish the “sting” of the penalty and weaken enforcement.
- Where the underlying statute imposes penalties without distinguishing between willful and unintentional violations, permitting deductions for “innocent” violations would still frustrate the same policy.

## Conclusion

The Court held that state fines for violating truck-weight laws are nondeductible under the “ordinary and necessary” business expense provision because deductibility would severely and directly undercut clearly expressed state safety and highway-protection policies, regardless of whether the violations were intentional.


Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30 (1958)