Gilmore Case

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United States v. Gilmore Cite as 11 AFTR 2d 758 (372 U.S. 39), 02/18/1963, Code Sec(s) 23(a)(2) Case Summary This case involves the deductibility for federal income tax purposes of legal expenses incurred in divorce proceedings of Don Gilmore to his wife, Dixie Gilmore. FACTS: At the time of the divorce, Don Gilmore owned controlling stock interests in three corporations, each of which was a franchised General Motors automobile dealer. Gilmore wanted to protect these assets against the claim of his wife. He wished to defeat the claim based on the reasoning that the loss of his controlling stock interests might cost him the loss of his corporate positions, his principal means of livelihood. He finally won the case and…show more content…
Prior to 1942, §23 allowed deductions only for the expenses “incurred in carrying on any trade or business.” Then the 1942 amendment merely enlarged the category of incomes to which expenses were deductible. And committee reports make clear that deductions under the new section were subject to the same limitations and restrictions. The Court said that it is clear that the personal and family expenses restrictions of §23(a)(1) must impose the same limitation upon the reach of §23(a)(2) – in other words that the only kind of expenses deductible under §23(a)(2) are those that related to a business purpose. Prior cases such as Trust of Bingham v. Commissioner, Lykes v. Commissioner, Kornhauser v. United States, Deputy v. du Pont were given as examples. The principle the Court derived from these cases is that the characterization, as “business” or “personal” of the litigation costs of resisting a claim depend on whether or not the claim arises in connection with the taxpayer’s profit-seeking activities. It does not depend on the consequences that might result to a taxpayer’s income-producing property from a failure to defeat the claim. That leads to the question: did the wife’s claims respecting Gilmore’s stockholdings arise in connection with his profit-seeking activities? DECISION: The Court determined that the wife’s claims stemmed entirely from the marital relationship, and not, under any tenable view of things, from income-producing activity. Thus none of
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