United States v. Gilmore

Facts of the Case

Respondent sued for refund of part of the income taxes paid by him for the years 1953 and 1954, on the ground that legal expenses incurred by him in defending divorce litigation with his former wife were deductible under § 23 (a)(2) of the Internal Revenue Code of 1939, as amended, which allowed as deductions from gross income ordinary and necessary expenses incurred for the conservation of property held for the production of income.” His gross income was derived almost entirely from his salary as president of three corporations and from dividends from his controlling stock in such corporations. His wife had sued for divorce, alimony and an alleged community property interest in such stock, and he alleged that, had he not succeeded in defeating these claims, he might have lost his stock, his corporate positions and the dealer franchises, from which nearly all of his income was derived. The United States Court of Claims upheld respondent’s claim. The Court granted certiorari.


Does the origin and character of a claim control the basic test of whether the expense was business or personal and therefore whether it is deductible?


Yes. Justice John Marshall Harlan delivered the opinion of the 7-2 majority. The Court held that the origin and character of a claim with respect to expense incurred, rather than its potential consequences for the taxpayer, controls the basic test of whether an expense is classified as business or personal