*181 Decision will be entered for the respondent.
1. Fines paid by petitioner, engaged in the business of transporting bulk liquids by motor vehicles, for violation of State laws prescribing maximum weight limitations, are not deductible from its gross income as ordinary and necessary business expenses.
2. Where petitioner was obligated by contract to pay fines imposed upon drivers of its vehicles by the State of Pennsylvania for violation of weight limitation laws, and, during the taxable year, paid fines for such violations, the amounts paid are not deductible under the provisions of section 23 (a) (1) (A) of the Internal Revenue Code of 1939 as "compensation for personal services actually rendered."
*427 The respondent determined a deficiency in income tax of petitioner for the year 1951 in the amount of $ 12,172.34.
The principal issue is whether fines paid by petitioner in 1951 for violating motor vehicle weight limitation laws of certain States*183 are deductible as ordinary and necessary business expenses under the provisions of section 23 (a) (1) (A) of the Internal Revenue Code of 1939.
FINDINGS OF FACT.
A portion of the facts have been stipulated and are found accordingly.
The petitioner is a corporation duly organized on January 1, 1945, and existing under the laws of the State of Pennsylvania. It kept its *428 books and filed its income tax return for the taxable year 1951 on a calendar year basis and on an accrual method of accounting.
The petitioner was during the taxable year 1951 engaged in the business of transporting bulk liquids by motor vehicles under lease or rental agreements with motor carriers holding operating certificates issued by the Interstate Commerce Commission and/or the public utility commissions of the various States in and through which petitioner transported bulk liquids. Petitioner leased to the certificated carriers its motor vehicles and furnished the driver-operator of same as petitioner's employee.
During the taxable year, petitioner leased its equipment and supplied its own driver-operator for the following certificated motor carriers of bulk liquids: Coastal Tank Lines; Chemical Tank*184 Lines, Lehman Transportation Company; Petroleum Transport, Inc.; NorthlandPetroleum Transport Company, and E. Brooke Matlack, Inc.
Petitioner and the carriers for whom it transported the bulk liquids were engaged in "over-the-road" transportation, which in the industry means the transportation of liquid commodities between towns or cities, but not solely within a municipality. Petitioner and its lessees transported a substantial portion of the bulk liquids carried over the road by all motor carriers in the States in and through which petitioner operated during the taxable year.
During the taxable year, petitioner operated its motor vehicles in the following States for the following approximate distances and made the following approximate number of trips:
| State | No. of miles | No. of trips |
| Pennsylvania | 6,110,798 | 77,385 |
| Ohio | 971,643 | 5,293 |
| New Jersey | 856,973 | 14,146 |
| Delaware | 383,612 | 2,984 |
| Maryland | 314,960 | 10,712 |
| West Virginia | 238,750 | 3,937 |
| Totals | 8,956,738 | 114,457 |
Petitioner and its lessees operated their vehicles in the transportation of bulk liquids both wholly within and between the aforementioned States. On approximately all of petitioner's trips, either*185 the transportation took place wholly within Pennsylvania, or Pennsylvania was involved as the originating or destination State.
The motor vehicles used and operated by petitioner in the course of its business and leased during the taxable year consisted solely of truck-tractor and semitrailer tank combinations. Petitioner owned and operated 142 truck-tractors, each of which had 2 axles, and 112 semitrailers, of which 62 had a single axle and 50 had 2 axles.
*429 The capacity of the tank on the single-axle semitrailers ranged from 4,500 to 5,000 gallons. The capacity of the tank on the 2- or tandem-axle semitrailers ranged from 4,600 to 5,900 gallons.
Petitioner's equipment in 1951 was substantially the same as that used and operated in the industry generally. The bulk of the semitrailer fleet of the other carriers contained tanks with a capacity ranging from 4,500 to 5,000 gallons, although some carriers had a small percentage of tanks, 10 per cent or less of their entire fleet, with a capacity of 4,000 gallons acquired mainly prior to the outbreak of World War II. During World War II, only tanks with a capacity between 4,500 and 5,000 gallons were available for purchase *186 because of war restrictions on manufacture.
The unloaded weight of the truck-tractors owned and used by petitioner and the industry generally was approximately 12,000 pounds, and the unloaded weights of the single- and tandem-axle semitrailer tanks were approximately 8,000 and 10,000 pounds respectively. The unloaded weight of the combination accordingly ranged between 20,000 and 22,000 pounds.
The bulk liquids which petitioner and the industry commonly carried and their approximate weights were as follows:
| Lbs. per gal. | |
| Gasoline | 6 |
| Kerosene | 6 3/4 |
| Domestic fuel oil | 7 |
| Bunker C oil | 8 |
Prior to and during the taxable year, each of the aforementioned States prescribed by statute the maximum weight for motor vehicles using the public highways of the respective States. The statutory maximum gross weight for the truck-tractor and semitrailer combination owned, used, and operated by petitioner was, for each of these States in 1951, as follows:
| State | Statutory citation | Maximum gross weight |
| Pennsylvania | 75 P. S. sec. 453 (g) | 45,000 lbs. |
| New Jersey | N. J. S. A. sec. 39.3-84 | 60,000 lbs. |
| Ohio | Ohio Gen. Code Ann. (Page) | Statutory formula which |
| sec. 7246. | results in range from 57,000 | |
| to 67,600 lbs. | ||
| Delaware | Del. Code Ann. tit. 21, ch. | 48,000 lbs. for single-axle |
| 45, sec. 4503. | trailers; 60,000 lbs. for | |
| tandem-axle trailers. | ||
| West Virginia | W. Va. Code Ann. (1949) | Statutory formula which |
| 1951 supp., sec. 1721 | results in range from 54,000 | |
| (463). | to 60,800 lbs. | |
| Maryland | Ann. Code of Md. (Flack, | Statutory formula which |
| 1951) art. 66 1/2, | results in gross weight of | |
| sec. 278. | 65,000 lbs. |
*187 *430 In the conduct of its business, petitioner would receive instructions from the certificated carriers to whom it leased its equipment to pick up and transport the bulk liquid from one point to another. Although the amount of liquid which was loaded into petitioner's semitrailer tanks was supervised by loaders employed by the source furnishing the product, it was the practice of petitioner, pursuant to orders from petitioner's management, that all tanks be loaded to maximum capacity consistent with a small 3 per cent tolerance for expansion.
In 1951, it was the common and widespread practice of the petitioner and other over-the-road bulk liquid carriers by motor vehicle, operating in Pennsylvania and the other States herein involved, to fill semitrailer tanks to capacity with bulk liquid.
During the taxable year, petitioner incurred and paid sums characterized by the laws of the aforesaid States as fines in the total amount of $ 37,965 for operating on the highways motor vehicles in violation of State statutes prescribing weights of motor vehicles. Of this $ 37,965, the sum of $ 35,165 constituted fines imposed for exceeding the maximum weights prescribed by the statute *188 of the State in which the fine was imposed. The balance, or $ 2,800 of the sum of $ 37,965, constituted fines imposed on petitioner by New Jersey for operating in New Jersey a vehicle which exceeded the maximum gross weight prescribed by the Pennsylvania statute, but did not exceed the 60,000 pounds gross weight otherwise prescribed by the New Jersey statute. Such New Jersey fines were imposed with respect to Pennsylvania vehicles operating in New Jersey, in accordance with the reciprocity provisions of New Jersey law which made applicable the Pennsylvania weight limitation to Pennsylvania vehicles on New Jersey roads.
The following table shows with respect to the taxable year involved the number and dollar amounts of fines and costs paid by petitioner to each of the States involved:
| Dollar amt. | Dollar amt. | |||
| State | No. of fines | of fines | of costs | Total |
| Pennsylvania: | ||||
| At $ 50 each | 649 | $ 32,450 | $ 2,709.40 | $ 35,159.40 |
| At $ 25 each | 62 | 1,550 | 226.75 | 1,776.75 |
| New Jersey | 7 | 2,800 | 30.00 | 2,830.00 |
| Maryland | 7 | 410 | 29.91 | 439.91 |
| Ohio | 9 | 405 | 51.10 | 456.10 |
| West Virginia | 10 | 320 | 39.68 | 359.68 |
| Delaware | 2 | 30 | 9.00 | 39.00 |
| $ 746 | $ 37,965 | $ 3,095.84 | $ 41,060.84 |
*189 Petitioner's vehicles made approximately 77,385 trips during the taxable year in and through Pennsylvania. During the summer months in the State of Pennsylvania, petitioner's vehicles carried a weight in excess of the maximum gross weight prescribed by the statute *431 on approximately 60 per cent of the trips, and during the winter months, petitioner's vehicles were overweight in Pennsylvania on approximately 75 per cent of the trips. With petitioner's maximum 4,500-gallon tank filled to capacity, petitioner was able to carry only gasoline weighing 6 pounds a gallon, or a gross product weight of some 27,000 pounds, and be within the legal weight limitations of 45,000 pounds, plus the 5 per cent leeway allowed by the Pennsylvania statute for equipment and product. During the summer months, petitioner carried gasoline on approximately 40 per cent of its trips. However, during the winter months, gasoline consumption by the public was reduced and the carriage of domestic fuel and Bunker C oils constituted an increased portion of petitioner's business. Petitioner's vehicles, when filled to capacity with domestic fuel or Bunker C oils, weight 7 and 8 pounds a gallon respectively, *190 carried at least a product gross weight ranging from 31,500 pounds to 36,000 pounds, which, together with the unloaded weight of equipment of at least 20,000 pounds, exceeded the Pennsylvania maximum gross weight.
Petitioner knew, at the time its vehicles were overloaded in the State of Pennsylvania, that it was operating vehicles which exceeded the Pennsylvania maximum gross weight requirements, and this knowledge pertained to the 711 times for which petitioner was fined. On many of the other trips, however, petitioner's vehicles were not stopped by the police and weighed and consequently petitioner was not fined.
Petitioner was taking a calculated risk that its overweight vehicles would not be discovered on a percentage of the times that its vehicles exceeded the Pennsylvania weight limitations.
All the violations for which petitioner paid fines in Pennsylvania and all the times that petitioner knew its equipment was being operated overloaded in Pennsylvania, pertained to exceeding the Pennsylvania 45,000 pounds maximum gross weight plus the 5 per cent leeway. Pennsylvania and the other States herein involved also prescribed by statute limitations on the axle weight per vehicle. *191 However, unlike a dry freight motor carrier, where the load can shift to or be built up disproportionately over one axle, the bulk liquid equipment is so engineered that the liquid load is a constant weight over each axle. Hence, on only rare occasions would a bulk liquid motor carrier, carrying a permissive maximum gross weight, be in violation of an axle weight requirement as where a particular truck-tractor would not combine properly with a particular semitrailer tank.
Petitioner did not knowingly operate its vehicles in New Jersey carrying a weight in excess of the 60,000 pounds maximum gross weight prescribed by the New Jersey statute for motor vehicles bearing New Jersey license tag registration. However, under the reciprocity provision of the New Jersey statute, a motor vehicle registered in another *432 State, such as Pennsylvania, was restricted in its gross weight, in using the New Jersey highways, to the maximum gross weight allowed by the State where the vehicle is registered. Hence, petitioner's Pennsylvania-licensed motor vehicles were restricted in operating on the New Jersey highways to the Pennsylvania maximum gross weight of 45,000 pounds, plus the 5 per*192 cent leeway, whereas the same equipment bearing a New Jersey license tag registration was allowed to use the highways of New Jersey bearing a gross weight of 60,000 pounds.
Petitioner was fined a total of 7 times by the New Jersey authorities for operating overweight equipment on the New Jersey highways and all of the fines pertained to carrying a weight on the New Jersey highways in excess of the 47,250 pounds allowed by Pennsylvania law but less than the 60,000 pounds allowed by New Jersey law. On these 7 trips and on many other occasions petitioner knowingly operated and knew at the time that it was operating vehicles in New Jersey bearing a weight under the 60,000 pounds, but in excess of that allowed by the Pennsylvania statute. On the other occasions, however, petitioner's vehicles were not stopped by the police and consequently petitioner was not fined.
In the remaining States of Maryland, Ohio, West Virginia, and Delaware, petitioner paid a total of 28 fines for operating overloaded vehicles exceeding the maximum weights prescribed by the statute of the State in which the fine was imposed. Petitioner, at the time these 28 trips took place, did not know that its vehicles*193 were overloaded in any respect. Although it is possible that some of the petitioner's vehicles were overloaded in these States on trips other than the 28 for which petitioner was fined, petitioner did not operate at any time any vehicles in these States with knowledge that the weight of the vehicle exceeded the maximum prescribed by law.
Petitioner's conscious and deliberate overloading was confined to Pennsylvania and to New Jersey insofar as the reciprocity provision of the New Jersey statute was applicable. In all the other States, any operation of overloaded equipment by petitioner, for which petitioner was either fined or not, was inadvertent and without the knowledge of petitioner at the time of the trip.
Various factors could have caused and did cause petitioner's vehicles to exceed at times the maximum weight requirements of the various States without petitioner's fault or knowledge at the time of the trip; the principal factors were:
(a) The nature of the loading process, whereby employees of the shipper, in order to assure customers of the shipper full measure at destination, filled the tanks, in order to take care of possible shrinkage in transit, beyond the maximum capacity*194 consistent with the small 3 per cent tolerance for expansion;
*433 (b) Changes in temperature during transit, whereby a vehicle, within legal weight limits at point of origin, could pick up snow and ice which would cling to the vehicle causing it to be overweight en route;
(c) Loading by gallonage, which was the common practice by reason of the fact that only a few of the refineries where the load originated used scales, coupled with residual variations in the weight per gallon of the product, in some cases a variance of 1 pound per gallon, so that reliance on average weight, which was the only measure feasible, was not accurate; and
(d) Combination improperly of a particular truck-tractor and semitrailer tank, so as to cause an axle overload.
Petitioner's practice of knowingly exceeding the Pennsylvania weight limitations in the operation of its vehicles was not confined to the taxable year 1951, but existed prior thereto. At the time of petitioner's incorporation on January 1, 1945, only single-compartment tanks of no less than 4,500-gallon capacity were available due to World War II restrictions relating to the conservation of steel and the attempt to have a uniform standardized*195 size of tank for maximum utility which would comply generally with the weight restrictions of most of the States of the United States. It had been the uniform practice in the industry during the war years to fill the tanks to capacity and this practice continued unabated for petitioner and the other carriers during the taxable year. Except where gasoline weighing approximately 6 pounds a gallon was carried, a full load of the other commonly transported bulk liquids resulted in a maximum gross weight of over the 45,000 pounds, plus the 5 per cent leeway, prescribed by the Pennsylvania statute, but normally under the 60,000 pounds approximately prescribed by the other States. Thus, the industry as a whole knew at the time it was operating its tanks filled to capacity on the Pennsylvania highways that the equipment was overweight except for the carriage of gasoline.
The revenue of petitioner and of its lessees and of the industry generally operating their own equipment was predicated on rates based on the number of gallons transported per mile. Revenue for petitioner and the industry generally in 1951 was thus keyed to the uniform practice of filling the tanks to capacity. In order*196 to have carried weights within the limitations of the Pennsylvania statute, petitioner would have had to reduce its revenue per gallon hauled, while operating costs would have increased because of the additional number of trips required, thus causing petitioner to operate at a loss. Petitioner could not have increased its rental charge to its lessees per gallon hauled to compensate for transporting a smaller number of gallons each trip, *434 since the competitive practices in the industry were such that had petitioner demanded an increased rental from its lessees, while the industry generally was filling its tanks to capacity and exceeding the Pennsylvania weight limitations, petitioner would have forced itself out of business. The lessees would have referred the business to other lessors of equipment, or would have carried the liquid in their own fleet of vehicles.
Competition among themselves and with the railroads and private carriers of the refineries played a major part in the continuance of the practice by the over-the-road motor carriers of bulk liquids to key their rates to tanks filled to capacity and consciously to exceed the Pennsylvania weight limitations. So long*197 as its competitors maintained the practice of carrying the minimum of 4,500 gallons on each trip and of paying the fines when the violations were discovered, no carrier could increase its rates to compensate for the reduction in operating revenue which would result from carrying legal loads in Pennsylvania. Nor could the industry as a whole have increased its rates so as to enable it to operate vehicles profitably while complying with Pennsylvania law, without losing the business to the railroads and to the private refineries operating their own motor vehicle equipment.
Aside from the competitive disadvantage and the loss of revenue, neither petitioner nor the other carriers operated their equipment with less than maximum capacity of liquid in their tanks, except on rare occasions, by reason of the unsafe and hazardous condition which the surge in such partially loaded tanks created in stopping the motor vehicles and in negotiating the equipment around the curves of the highways. Some of the tanks of petitioner and of the industry were divided into three compartments. None of these multiple-compartment tanks was engineered during World War II, and petitioner had only 20 of them*198 in 1951. It was possible to avoid the road hazard of a partially loaded tank by filling two of the compartments to capacity and leaving the third empty. However, it was not feasible from the point of view of revenue to operate the equipment at two-thirds capacity. Moreover, insofar as the transportation of domestic fuel and Bunker C oils resulted in the equipment being overloaded under the Pennsylvania statute, such oils could only be carried in single- and not in multiple-compartment tanks.
During the taxable year, it was possible to purchase semitrailer tanks having a capacity less than the 4,500 gallons minimum tank then in current operation by petitioner and the industry. However, it would not have been economical for petitioner to have scrapped its entire fleet of existing tanks and to have purchased smaller equipment which could have transported full loads at legal weights within the State of Pennsylvania. To have done this, while the other carriers *435 continued to operate their existing equipment filled to capacity, would have put petitioner at a competitive disadvantage insofar as rates and revenue were concerned.
Although Pennsylvania was the focal point of petitioner's*199 operations, the essence of petitioner's lease arrangements with the certificated carriers was the assurance that petitioner's fleet would be available at peak periods in other States and for interstate carriage, as well as in Pennsylvania. The equipment in the industry must be flexible in the sense it can economically be used generally throughout the States in which it is operated. The rate structure in the States neighboring Pennsylvania, in and through which petitioner and the other carriers operated their vehicles, was based on hauling maximum gallonage per trip consistent with the gross weight laws of approximately 60,000 pounds. Equipment of the size suitable for legal weight in Pennsylvania could not have been economically operated in the other States.
The Pennsylvania statute and the statutes of the other States herein involved have provisions for the obtaining of a permit for a fee from designated State authorities for the operation of motor vehicles on the highways of the respective States bearing a weight in excess of the maximum therein normally prescribed. The fee for such a permit in Pennsylvania is $ 5 plus 2 cents per ton of 2,000 pounds overweight per mile. It*200 was the policy of the State of Pennsylvania not to issue permits where material could be taken off the vehicle so as to reduce the gross weight thereof to 45,000 pounds.
The industry practice, followed by petitioner, was not to seek permits for operating the equipment in excess of the maximum prescribed by the Pennsylvania statute.
As a consequence of the practice to fill the tanks to capacity and operate equipment exceeding the maximum gross weight allowed by Pennsylvania law, petitioner and three of its lessees, during 1951, frequently had their vehicles stopped by the police and had to pay fines for operating the overloaded equipment in Pennsylvania. They knowingly violated the Pennsylvania motor vehicle weight laws a substantial number of times in excess of the number of times their vehicles were stopped by the police and fined.
Fines for operation of overloaded equipment in the States involved herein, other than Pennsylvania, were infrequent because the approximate 60,000 pounds maximum gross weight assured capacity use of the standard equipment. The experience of the other carriers in the industry with respect to the operation of overloaded equipment in these other States *201 was substantially the same as that of petitioner, namely, that with the exception of violations of the reciprocity provision of the New Jersey statute, only occasionally were they fined because their *436 motor vehicles were overweight in these States, the carriers being unaware at the time that the vehicles were overweight.
The following table shows, with respect to the taxable year 1951, the number and dollar amount of fines imposed and paid in Pennsylvania as a result of the enforcement by the Pennsylvania State Police of the Pennsylvania statute prescribing maximum gross weight for motor vehicles:
| No. of vehicles stopped and weighed | 182,082 |
| No. of fines for vehicles over 5 per cent and less than 10 | |
| per cent overweight | 7,875 |
| Dollar amount of fines for vehicles over 5 per cent and less | |
| than 10 per cent overweight | $ 196,875 |
| No. of fines for vehicles over 10 per cent overweight | 20,540 |
| Dollar amount of fines for vehicles over 10 per cent overweight | $ 1,027,000 |
| Total no. of fines | 28,415 |
| Total dollar amount of fines | $ 1,223,875 |
The above table does not reflect any enforcement activities by police of Pennsylvania municipalities or political subdivisions. The records*202 of petitioner indicate that approximately 60 per cent of petitioner's violations, on which arrests were made, were enforced by the Pennsylvania State Police and the remaining 40 per cent by the police of the local Pennsylvania municipalities.
Pursuant to the provisions of the Pennsylvania statute for operating motor vehicles with a weight in excess of the maximum prescribed by law, notice of violation was sent to and the fine was imposed on the driver of the vehicle, petitioner's employee. Under the provisions of the statutes of the other States involved herein, the fine was imposed on petitioner as the owner of the overweight vehicle.
Petitioner had contracts in full force and effect during and prior to the taxable year with its driver-employees represented by A. F. L. unions under the terms of which petitioner was obligated to bear all costs in connection with the operation of overloaded equipment. In accordance with the contracts, petitioner paid in the taxable year all the fines imposed by the State of Pennsylvania on its driver-employees for operating the overloaded equipment. Several other trucking organizations also followed this practice.
Petitioner's drivers had the responsibility*203 for, and paid without reimbursement from petitioner, any fines imposed for parking, speeding, or driving violations.
As between petitioner and its lessees, the fines incurred by petitioner's operation of vehicles in excess of the maximum weight prescribed by law were payable solely by petitioner and petitioner had no arrangement with its lessees that it was to be reimbursed for the payment of these fines or any part thereof.
*437 None of petitioner's drivers was imprisoned or had his license suspended or was subjected to any sanction other than a fine for operating petitioner's vehicles overweight in Pennsylvania in 1951, and this was true of the employee-drivers of other carriers.
No sanctions were imposed by the State of Pennsylvania on petitioner or other carriers in 1951 for operating the overloaded equipment, other than by way of the fines imposed on the driver-employees. The Pennsylvania statute provides for removal of the excess load, in the discretion of the enforcement authorities, before the vehicles can continue en route. Petitioner was never required by the Pennsylvania authorities to remove any excess load before its overweight motor vehicle was permitted to continue*204 on the Pennsylvania highways.
During the years of World War II and up to the latter part of 1950, petitioner's overweight vehicles were not stopped by the Pennsylvania authorities.
The Interstate Commerce Commission prescribes a uniform system of accounting in the keeping of books and records and in the preparation of reports required to be filed with it by motor carriers subject to its jurisdiction. The Pennsylvania Public Utility Commission follows, adopts, and interprets accounting words and phrases and prescribes that annual reports which may be required to be submitted to it by motor carriers be prepared in accordance with the Uniform System of Accounts prescribed by the Interstate Commerce Commission.
Petitioner did not, during the taxable year 1951, hold any operating certificate issued by the Interstate Commerce Commission and/or by the Pennsylvania Public Utility Commission, and, accordingly, was not required to, nor did it for the taxable year 1951, file any annual reports with either Commission.
It was the practice in 1951 of motor carriers required to keep books and records for, and to file reports with, the Interstate Commerce Commission and/or Pennsylvania Public Utility*205 Commission to include fines for operating motor vehicles in excess of the weight prescribed by State law as an operating expense item in Account No. 4280 of the Uniform System of Accounts entitled "Other transportation expenses," under the listed category "Fines for traffic violations."
Examination and review of the books, records, and reports of motor carriers under its jurisdiction is periodically made by the Interstate Commerce Commission. No change or adjustment was made for the year 1951 or years prior thereto with respect to the reporting of the fines for violating the State weight laws in Account No. 4280.
A distinction is made in the Uniform System of Accounts between operating revenue and operating expense on the one hand, and other *438 revenue and other expense on the other hand. Items of operating expense are considered and items of nonoperating expense are not considered by the Interstate Commerce Commission for rate-making purposes. Penalties and fines for violations of law, except fines for traffic violations, are reported as a nonoperating expense item in Account No. 7500 of the Uniform System of Accounts.
On June 30, 1955, Act No. 70, amending the Pennsylvania*206 Vehicle Code, was enacted providing, inter alia, for the combination of truck-tractor and semitrailer motor vehicles used by the bulk liquid motor carrier industry, a maximum gross weight of 50,000 pounds for the single-axle semitrailers and of 60,000 pounds for the tandem-axle semitrailer, effective on date of enactment.
In most instances, in the taxable year, the gross weight of each of petitioner's vehicles using the Pennsylvania highways was less than 60,000 pounds.
Petitioner filed with the collector of internal revenue for the first district of Pennsylvania a United States corporation income tax return for the calendar year 1951. Included in the item of "Transportation Expense" in Schedule B -- Cost of Operations in the amount of $ 593,066.08, was the amount of $ 41,060.84, representing fines and costs paid by petitioner for violating State motor vehicle weight laws. The respondent determined that the $ 41,060.84 did not constitute a deductible expense.
OPINION.
1. Petitioner seeks to deduct, under section 23 (a) (1) of the Internal Revenue Code of 1939, the fines and costs paid by it in 1951 for operating motor vehicles in violation of State weight limitation laws. Its*207 principal contention is that such payments constituted ordinary and necessary business expenses. Since most of the violations occurred in Pennsylvania, we shall consider that contention first in relation to the fines paid to that State.
Pennsylvania had lower weight limits than the other States, and petitioner's vehicles when fully loaded with liquids other than gasoline were in excess of the legal limit in Pennsylvania. Nevertheless, petitioner as well as other carriers in Pennsylvania consistently and deliberately loaded their vehicles so as to exceed the permissible limit. The carriers might have applied for permits, upon payment of a fee, to exceed the legal limit, but the procedure was somewhat cumbersome, and it was highly doubtful whether such permits would have been granted. Moreover, the fees required for such permits were not insubstantial, and the evidence suggests that in view of the comparatively small percentage of cases in which violations were detected, it was thought to be more advantageous to take the risk and pay the fine. *439 The violations were conscious and deliberate; they represented a calculated risk taken by the petitioner and other carriers.
True, *208 the violations were widespread and common, and the evidence also disclosed that unless petitioner did engage in such practices it would have been at a competitive disadvantage in the operation of its business. Yet, these considerations do not justify the deduction in the light of the decisions in this field.
It has long been recognized that the payment of fines or similar penalties is not deductible as an ordinary and necessary business expense. See, e. g., Commissioner v. Longhorn Portland Cement Co., 148 F. 2d 276 (C. A. 5), certiorari denied 326 U.S. 728">326 U.S. 728; Helvering v. Superior Wines & Liquors, 134 F. 2d 373, 376 (C. A. 8); Burroughs Building Material Co. v. Commissioner, 47 F. 2d 178 (C. A. 2); Great Northern Ry. Co. v. Commissioner, 40 F. 2d 372 (C. A. 8); William F. Davis, Jr., 17 T. C. 549; Davenshire, Inc., 12 T. C. 958; Bonnie Bros., Inc., 15 B. T. A. 1231, 1236. Cf. Commissioner v. Heininger, 320 U.S. 467">320 U.S. 467, 473;*209 Lilly v. Commissioner, 343 U.S. 90">343 U.S. 90.
The laws of Pennsylvania, in effect in 1951, expressly prohibited the operation on its highways of vehicles whose gross weights exceeded certain fixed amounts and provided that operators of overweight vehicles should, upon conviction, pay specified fines and costs of prosecution, and in default of payment thereof, should undergo imprisonment for not more than 5 days in cases where the vehicle did not exceed by more than 10 per centum the maximum weight allowed, and for not more than 10 days where the vehicle did exceed by more than 10 per centum the maximum weight allowed. Vehicle Code of Pennsylvania, Act of May 1, 1929, P. L. 905, sec. 903, as amended, 75 P. S. sec. 453. The purpose of these laws was to protect the highways and bridges from damage and to insure the safety of persons traveling over them. McDonald v. Pennsylvania R. Co., 210 F. 2d 524, 528 (C. A. 3); W. J. Dillner Transfer Co. v. Messner, 371 Pa. 356">371 Pa. 356, 359, 89 A. 2d 516, 518; Commonwealth v. Burall, 146 Pa. Super. 525, 529, 22 A. 2d 619, 622.*210 They were not remedial laws having as their purpose the recovery of damage to the highways or bridges even though, as petitioner points out in its brief, they provided that the fines and penalties collected be used for the construction, repair, and maintenance of highways. Vehicle Code of Pennsylvania, supra, sec. 1207, as amended, 75 P. S. sec. 737. They were "penal" laws, Commonwealth v. Burall, supra, 146 Pa. Super. at p. 529, 22 A. 2d at p. 622, and were enacted to enforce obedience to prescribed weight limitations and to punish violators.
Under contracts entered into with its driver-employees, petitioner was obligated to bear all costs in connection with violations of laws of Pennsylvania against operating overloaded vehicles when its drivers *440 were required to operate such equipment. Pursuant to these agreements it paid fines and costs to the State of Pennsylvania in the year 1951 in the amount of $ 36,936.15. Inasmuch as they were criminal penalties imposed for violations of State laws, their allowance as deductions would have the effect of mitigating the degree of punishment and of frustrating the purpose and*211 effectiveness of those laws. On the authority of cases heretofore cited, we hold they are not deductible.
A unique situation is presented as to the 7 fines and costs aggregating $ 2,830 paid to New Jersey. The New Jersey limit was 60,000 pounds, but its laws had a reciprocity provision whereby a vehicle registered in Pennsylvania had to comply with the stricter Pennsylvania requirements. Accordingly, although petitioner's vehicles, in these 7 instances, were under the 60,000-pound limit otherwise permissible in New Jersey, they were in excess of the 45,000-pound limit (plus the 5 per cent leeway) permitted under Pennsylvania law, and therefore were in violation of New Jersey law. For reasons best known to itself, New Jersey has undertaken to accommodate its penal provisions to those of Pennsylvania in these circumstances, and it made it a criminal offense to operate Pennsylvania vehicles on its roads which exceeded the lower Pennsylvania limits. These violations were just as deliberate as the ones occurring in Pennsylvania itself, and the fines and costs are similarly not deductible.
There remain for consideration the fines paid by petitioner for overweight violations of the *212 laws of Maryland, Ohio, West Virginia, and Delaware. Petitioner urges that the allowance of these fines as deductions would not frustrate any sharply defined policy of the laws of those States because they were common to the industry as a whole and were innocent, nonnegligent, and not the result of failure to take practical precautions. In support of this contention the petitioner relies upon Jerry Rossman Corporation v. Commissioner, 175 F. 2d 711 (C. A. 2), and related cases in which it was held that civil penalties for overcharges under the Emergency Price Control Act which were neither willful nor the result of failure to take practical precautions were deductible as ordinary and necessary business expenses. See also National Brass Works v. Commissioner, 182 F. 2d 526 (C. A. 9); Commissioner v. Pacific Mills, 207 F. 2d 177 (C. A. 1). The applicability of such cases to situations such as the one before us was considered by the United States District Court for the Middle District of Tennessee in Hoover Motor Express Co. v. United States, 135 F. Supp. 818">135 F. Supp. 818.*213 In holding that fines paid for violations of State laws prescribing maximum weight limitations were not deductible as ordinary and necessary business expenses, the court said (pp. 820, 822):
*441 In the view which the Court takes of the case, it is not necessary to determine whether the plaintiff did all which should reasonably be required of it as a prudent operator to comply with the weight limitations involved. Assuming that it took every precaution that could fairly be demanded consistent with a practical operation of its business, and assuming further that it did not act with wilful intent, the Court is of the opinion that to allow the claimed deductions from gross income for the taxable years would nevertheless frustrate the clearly defined policies of the applicable state weight limitation laws.
There can be no doubt that the underlying policy of the laws under which the fines were paid is not only to protect the highways of the state but also to protect the persons using them. Violations of the statutes are punishable by the imposition of a fine which is penal in character. No distinction is made in the statutes between an innocent or non-negligent violation, on the*214 one hand, and one which is either wilful or due to a negligent failure to take adequate precautions, on the other hand. It was evidently considered that the purposes of the statutes could be accomplished more effectively by treating all violators alike. This thought is borne out by the provisions commonly found in statutes of this character that the Commissioner of Highways, or other proper authority, shall have discretionary power to grant special permits for freight movements in excess of the prescribed weight limitations, the inference being that, in the absence of such special permit, neither hardship nor good faith shall constitute a defense to a violation.
* * * *
in the OPA cases there was statutory authority for a distinction between innocent and wilful violators, and since the Act itself made the distinction, it was possible to find that the allowance of an innocent and non-negligent overcharge as a deduction would not in any way impair or frustrate the policy of the Act. But the policy of the state weight limitation laws under consideration is to place all violators on the same basis without recognition of degrees or character of guilt. This being true, it would clearly*215 frustrate the policy of the statutes if the distinction should be made by a court in applying the provisions of Section 23 (a) (1) (A) of the Internal Revenue Code. To the extent that the deductions should be allowed because of innocence or due care the taxpayer would be relieved of the consequences of his violation, although the state law itself made no such distinction.
The District Court's opinion is an effective answer to the contentions of the petitioner, and we follow it here. We hold that the fines paid by it to the States of Maryland, Ohio, West Virginia, and Delaware are not deductible as ordinary and necessary business expenses.
2. Petitioner makes an alternative contention, limited to the various fines and costs paid to Pennsylvania, where they were formally imposed upon the employee-driver of the overweight motor vehicle and not on the owner. Petitioner's contention is that such payments are deductible as reasonable compensation for services rendered. This argument is without merit. Under a contract with its drivers petitioner was obligated to bear all costs in connection with violations of laws against operating overloaded equipment whenever its drivers were required*216 to operate such equipment. It required its drivers to operate overloaded equipment and fines imposed for violations of *442 State laws thus became its responsibility and it paid the fines. These payments were clearly not made for the purpose of compensating drivers "for personal services actually rendered" and are not deductible as compensation paid under section 23 (a) (1) (A), supra.
Decision will be entered for the respondent.