In the Welch v. Helvering case of 1933, the U.S Supreme Court ruled that business expenses deducted by a taxpayer from his income must be both ordinary and necessary to be considered legitimate under Section 162(a) of the Internal Revenue Code. The plaintiff, Mr. Welch, had paid off debts incurred by a previous company he was associated with in an attempt to maintain good relationships with clients for his new venture. He argued these payments were necessary for generating future income and should therefore be deductible as business expenses on his tax return. However, Commissioner Guy T. Helvering disagreed stating they were non-deductible personal liabilities rather than regular or essential costs related to running a business operationally or administratively. The court sided with Commissioner Helvering concluding that while such expenditures might have indirectly benefited Mr.Welch's reputation and customer relations; they did not meet the criteria set out in law for allowable deductions since they weren't typical nor indispensable costs directly tied to daily operations of current trade or business but instead stemmed from capital transactions relating back to prior enterprise’s obligations.

In the dissenting opinion for Welch v. Helvering, Justice Cardozo disagreed with the majority's ruling that payments made by a businessman to maintain his reputation were not deductible as ordinary and necessary business expenses under section 23(a) of the Revenue Act of 1928. He argued that such an interpretation was too narrow and failed to consider how integral maintaining one’s professional reputation is in conducting business successfully. According to him, these payments should be seen as losses incurred in trade or arising from efforts to preserve good will - a valuable asset for any businessperson. Therefore, they should be treated like other costs associated with running a successful enterprise and thus qualify for tax deductions.