United States v. Gilmore

PETITIONER: United States
RESPONDENT: Don Gilmore et ux.
LOCATION: United States Court of Claims

DOCKET NO.: 21
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 372 US 39 (1963)
GRANTED: Oct 09, 1961
ARGUED: Mar 27, 1962 / Mar 28, 1962
REARGUED: Dec 05, 1962 / Dec 06, 1962
DECIDED: Feb 18, 1963

ADVOCATES:
Eli Freed - argued and reargued for the respondents
Wayne G. Barnett - argued and reargued for the United States

Facts of the case

Don Gilmore was the primary owner and managing officer of three different franchises of General Motors in California. In 1955, Don Gilmore and his wife, Dixie Gilmore, divorced. The trial court determined that the divorce was absolute without alimony for Dixie, which meant that Don successfully protected his assets from Dixie's claims that his assets were community property. Don's legal expenses totaled about $40,000 for the taxable years of 1953 and 1954. The Internal Revenue Code allows deductions from gross income for "ordinary and necessary expenses incurred during the taxable year for the conservation of property held for the production of income."

Gilmore sued in the Court of Claims to recover alleged overpayment of income taxes related to the legal expenses incurred during the divorce. The Court of Claims held that the legal expenses were attributable to Gilmore's successful resistance of his wife's claims to certain assets and were therefore deductible for federal income tax purposes. However, the Commissioner of Internal Revenue found that these expenditures were personal or family expenses and therefore not deductible. The U.S. Supreme Court granted certiorari to address the question in the administration of the tax laws.

Question

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?

Media for United States v. Gilmore

Audio Transcription for Oral Argument - March 28, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument - December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument - December 05, 1962 in United States v. Gilmore

Audio Transcription for Oral Argument - March 27, 1962 in United States v. Gilmore

Earl Warren:

Number 255, United States versus Don Gilmore et al.

Mr. Barnett.

Wayne G. Barnett:

Mr. Chief Justice, and may it please the Court.

This case and the Patrick case that follow it are income tax cases.

They -- they involve the deductibility by husband of the expenses of resisting or compromising a wife's claims against him for property in a divorce proceeding.

In both cases, deductions were allowed by the lower courts under Section 23 (a) of the 1939 Code and the corresponding provisions of the 1954 Code.

Those provisions allow a deduction for the ordinary and necessary expenses paid or incurred in carrying on a trade or business or for the production or collection of income or for the management, conservation or maintenance of property held for the production of income.

The ground for allowing the deductions --

Potter Stewart:

You're addressing yourself now to Gilmore case?

Wayne G. Barnett:

Yes, the Gilmore case, right.

Potter Stewart:

You filed a brief (Voice Overlap)

Wayne G. Barnett:

I -- I'm -- my introduction is to --

Potter Stewart:

(Voice Overlap) the Gilmore case.

Wayne G. Barnett:

Yes, yes, rate the two together.

Potter Stewart:

Right.

Wayne G. Barnett:

The ground for allowing the deductions was that, unless the wife's claim was defeated and the husband was required to pay what the wife sought, he would have to dispose of his income producing property in order to be able to pay her.

Now, our position is that the characterization of an expense, of resisting a claim depends upon the nature and source of the claim asserted and not upon the consequences of having to satisfy it if a judgment -- an adverse judgment should be entered.

That is if the claim arises out of the business transaction, the cost of that depend in it is deductible even though the judgment, if granted, will expend itself on personal assets, just your home or life insurance policies.

On the other hand, if the claim asserted, arises out of the personal transaction, the cost is not deductible.

It's a personal expense even though the judgment might expend itself on business assets.

You said that there could be no deduction in respect to the attorney's fees in connection with the divorce proceeding.

Wayne G. Barnett:

That is correct.

Across the board --

Wayne G. Barnett:

That's right, that's right.

(Inaudible)

Wayne G. Barnett:

Well, absent -- something that I can't foresee, but I -- I am prepared to say, no expenses in a divorce proceeding.

This case, the Gilmore case, is here on certiorari to the Court of Claims.

It involves a divorce proceeding in the Courts of California.

The -- Mr. Gilmore and Dixie Gilmore were married in 1946.

In 1952, after six years of marriage, Mrs. Gilmore filed a suit for divorce and Mr. Gilmore counterclaimed for divorce.