United States v. Gilmore (372 U.S. 39)

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 allows 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 which were franchised automobile dealers 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. Held: None of respondent's expenditures in resisting these claims is deductible under § 23(a)(2). Pp. 40-52.


 * (a) The origin and character of the claim with respect to which an expense was incurred, rather than its potential consequences upon the fortunes of the taxpayer, is the controlling basic test of whether the expense was "business" or "personal" and hence whether or not it is deductible under § 23(a)(2). Pp. 44-51.


 * (b) The wife's claims stemmed entirely from the marital relationship, and not, under any tenable view of things, from income-producing activity. Therefore, none of respondent's expenditures in resisting these claims can be deemed "business" expenses deductible under § 23(a)(2). Pp. 51-52.

Ct. Cl., 290 F.2d 942, reversed and case remanded.

Wayne G. Barnett reargued the cause for the United States. With him on the briefs were Solicitor General Cox, Assistant Attorney General Oberdorfer, Richard J. Medalie, Melva M. Graney, Harold C. Wilkenfeld and Arthur I. Gould.

Eli Freed reargued the cause and filed briefs for respondents.

MR. JUSTICE HARLAN delivered the opinion of the Court.