Surasky v. United States

325 F.2d 191 (5th Cir. 1963)

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Nature of the Case

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Facts

Surasky (P) purchased 4,000 shares of Montgomery Wards in 1954 and 1955. The total cost was $268,870.20. P bought for the normal reasons of greed; in order to make money. This purchase was made on the advice of Wolfson who has also purchased more than 50,000 shares. Wolfson laid out an aggressive program, which he thought would improve the company and greatly enhance stock value. Plans to get this before management went on deaf ears. Thereafter, P and others formed a committee to rebuild “Monkey Wards.” The charter was to make far-reaching changes in management, the creation of new stores, modernization, developing private brands, increasing inventory turns, and generally recreating a dynamic company. The Committee started a proxy campaign to get shareholder approval. P contributed $17,000 to the committee. The efforts were partially successful, and three of nine directors were committee elected directors. Immediately after the election, the Chairman of the Board and president resigned. The venture was a profitable one for the participants as P got increased dividends, and when he sold his stock, he got a capital gain of $50,929.55. P attempted to write off the contributions to the committee. The court denied the deductions in finding that there was a lack of a proximate relationship between the expenditure and the production of income or the management of income producing property; it was pure speculation whether any benefit could be gotten from the expenditure of these monies.