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Welch (P) was the secretary of E.L. Welch Company engaged in the grain business. The corporation was eventually determined to be bankrupt. P then made a contract with Kellogg to purchase grain for it on commission. To reestablish relations with customers who he had known in acting for the Corporation, P decided to pay the debts of that company in order to establish standing and credit. During the next years, P made substantial repayments that are detailed in the Freeland book 12th edition page 316 bottom paragraph. The IRS ruled that these payments were not deductible from income as ordinary and necessary expenses but were capital expenditures; the outlay for reputation and goodwill. This decision was affirmed along the way, and the Supreme Court granted certiorari.

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