UNITED STATES v. GILMORE

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Case Basics
Docket No. 
21
Petitioner 
United States
Respondent 
Don Gilmore
Opinion 
Reargued: 
Tags
Term:
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?

Conclusion 
Decision: 7 votes for United States, 2 vote(s) against
Legal provision: Internal Revenue Code

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; therefore legal expenses are deductible as expenses incurred for conservation of property held for production of income. Dixie Gilmore’s claims stemmed from the marital relationship and not from income-producing activity; therefore the claims in this case were personal, rather than business, expenses.

In their dissenting opinion, Justice Hugo L. Black and Justice William O. Douglas wrote that the majority opinion based its analysis on an unjustly narrow interpretation of the Internal Revenue Code. They argued that the legal expenses in this specific case should be considered business expenses.

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UNITED STATES v. GILMORE. The Oyez Project at IIT Chicago-Kent College of Law. 25 May 2015. <http://www.oyez.org/cases/1960-1969/1962/1962_21>.
UNITED STATES v. GILMORE, The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/1960-1969/1962/1962_21 (last visited May 25, 2015).
"UNITED STATES v. GILMORE," The Oyez Project at IIT Chicago-Kent College of Law, accessed May 25, 2015, http://www.oyez.org/cases/1960-1969/1962/1962_21.