In this suit the plaintiff taxpayer seeks to recover the sum of $3,411.47, the amount by which his income tax for the year 1941 was increased by reason of the refusal of the Commissioner to allow the deduction of an item of $5000, claimed in the income tax return to be a 'bad debt, but now asserted to be allowable as a business expense or a loss incurred in business. There is no dispute about the facts.
It appears that the plaintiff, Mr. Friedman, a Boston lawyer of long experience, had a valued client in whom he had confidence, one Louis H. Wax, whose proposed composition in bankruptcy required the deposit in court of the sum of $7000. The record shows that Mr. Friedman made this deposit in February, 1938, accompanying it with a caveat to the effect that no part of the money came from Wax or his estate. In November, 1939, Mr. Friedman entered a petition in bankruptcy court alleging “that the money deposited for the proposed composition, which has been abandoned,” was deposited by him and was not the property of the bankrupt, and asking that it be ordered returned. The petition was denied in November, 1941, and thereupon Mr. Friedman filed an undertaking that he would not further oppose transfer of the money to the trustee in bankruptcy, at the same time alleging that slightly over $5000. of the amount deposited was his own money.
It seems that the reason Mr. Friedman furnished this money from his own funds in the bankruptcy proceeding was because, in conversations with attorneys for creditors, when he was urging the acceptance of the proposed composition, he had personally assured them that the money to carry it out would be forthcoming. He did this without informing Mr. Wax and without intending to subject him to any legal liability, presumably feeling certain that the money would be obtained from a certain life insurance policy, which he had in his possession. This policy on the life of Wax, payable to his wife, could be pledged for $5000, but when it came to that point Mr. and Mrs. Wax refused to have it so used, which left Mr. Friedman in the breach. Commendably recognizing his moral obligation, in view of the assurances he had given, he paid the money to the clerk of the bankruptcy court.
The question presented is whether the $5000, which the plaintiff in his complaint alleged was “lost by him in connection with the bankruptcy proceedings of one Louis H. Wax”, and which he claimed as a deduction from income in his return for 1941, was wrongfully disallowed by the Commissioner, the plaintiff now claiming that it should have been allowed as an ordinary and necessary expense in carrying on business under Section 23(a) (1), or a loss incurred in business under Section 23(e) (1), of the Internal Revenue Code, 26 U.S.C.A. § 23(a) (1), (e) (1).
The parties are in agreement that the plaintiff, to recover, must show the applicability of one or the other of those Sections. We agree with the District Court that he has failed to do so.
The plaintiff contends that the loss of the amount in question was due to his keeping his word, which the ethics of his profession, as well as his own conscientiousness compelled him to do, and argues that consequently the payment was made and the loss incurred in his law business, and should have been allowed as a deduction from income under one or the other of the sections referred to. His position is illustrated by his rhetorical question: Is it not part of a lawyer’s business to keep his word? It might be answered that it is everybody’s business to do so, but that is wide of the mark. We are obliged to inquire whether the circumstances of this loss — no matter how creditably incurred' — are clearly within the coverage of either Section referred to. Nor can equitable considerations be allowed to control. The matter of deductions from income “ * * * ‘depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed.’ ” Deputy v. Du Pont, 308 U.S. 488, 493, 60 S.Ct. 363, 366, 84 L.Ed. 416.
It is necessary to consider the origin of the obligation under which the taxpayer considered himself to be under when he *271made the payment in. question, in determining whether it is a permissible deduction under either Section of the statute. It arose from the gratuitous assurance given attorneys for creditors of Wax by Mr. Friedman that the money for the composition would be forthcoming if they would: approve it. In effect, it was the voluntary underwriting of the obligation of another. It was, of course, the duty of the client to furnish the money, not of his attorney. Payment of the $5000. by the attorney was made as a consequence of his undertaking and in pursuance of it and was no less voluntary than the assurance which occasioned it. From any point of view his loss was caused by his voluntary action.
As was said by this Court in the very similar case of W. F. Young, Inc., v. Commissioner, 120 F.2d 159, 166, “Even if the credit and reputation of the taxpayer would have been improved by these payments and even though they would in any way benefit the taxpayer, voluntary payments are not deductible as ordinary and necessary business expenses or losses.” See also Robinson v. Commissioner, 8 Cir., 53 F.2d 810, 79 A.L.R. 975.
The emphasis placed by the plaintiff upon his moral obligation to keep his professional word should not obscure the fact that the transaction on his part was voluntary from the beginning.
That the circumstances of the taxpayer’s payment preclude its being considered either an “ordinary and necessary expense” of his business or a loss incurred in business is clear both from the Regulations promulgated under the Internal Revenue Code and the construction Section 23(a) (1) and Section 23(e) (1) have received by the Courts.
The business expenses covered by the former Section are limited to those described as being “ordinary and necessary” ; such as are directly connected with and proximately resulting from carrying it on; those "normally originating in a liability created in the course of its operation. Deputy v. Du Pont, supra. Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212.
The moral obligation which the taxpayer recognized here, to his financial detriment, was an extra-professional liability which resulted in a loss which is certainly not clearly covered by Section 23(a) (1) according to the accepted construction of that Section.
Nor is the taxpayer in any better case if he claims a deductible loss under Section 23(e) (1). His was not a business loss made in carrying on a law practice. It is obviously no part of a lawyer’s business to take on a personal obligation to make payments which should come from his client, unless in pursuance of a previous understanding or agreement to do so. The voluntary nature of the action, resulting in the loss, takes it outside of this Section as well as the other. W. F. Young v. Commissioner, supra. Robinson v. Commissioner, supra.
It should be said that we also see no error in the finding of the District Court that the payment of the $5000 — if ever a proper deduction — was deductible only in 1938, when made, and not in 1941, when the taxpayer failed in an attempt to get it back. It is admittedly not a debt due the taxpayer which became “bad”. The deposit was made without restriction of destination and was, for all practical purposes, gone and lost to the owner when made.
The action of the District Court in giving judgment for the defendant on the claim in the complaint for the item of $3,411.47 is affirmed.
It appears however from a stipulation filed by counsel that plaintiff’s right to a refund of the sum of $235.19, as an overpayment of his tax liability for 1941, is conceded by the defendant. This was an item covered by a separate claim in the complaint and is not referred to in the opinion or the judgment of the District Court. The plaintiff is entitled to judgment for the amount of this claim, with costs.
The judgment of the District Court is vacated and the case is remanded to that court with direction to enter judgment for the plaintiff in the amount of $235.19 with costs in that court.