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12 T.C. 1114

Kaufman v. Commissioner

United States Tax Court

Decided June 22, 1949

United States Tax Court · decided 1949-06-22

Deduction -- Ordinary and Necessary Expense -- Defense Against Indictment -- Section 23 (a) (1). -- A lawyer, indicted for conspiracy to obstruct justice, paid attorneys' fees and other expenses in… Held: the expenses of the proceedings were deductible as ordinary and necessary expenses under section 23 (a) (1), I. R. C.

Key passage — most relied on by later courts

“The petitioner claims the deductions under section 23(a)(1) of the Internal Revenue Code. The respondent does not rely upon the disbarment, but argues that it would be neither ordinary nor necessary for a lawyer in the course of his practice to have to defend himself against a criminal charge of conspiracy to obstruct justice and to defraud the United States. However, it is sufficient if the basis of the indictment was connected with and grew out of the legitimate business transactions of the petitioner. Kornhauser v. United States, 276 U.S. 145 ; Commissioner v. Heininger, 320 U.S. 467 ; Citron-Byer Co., 21 B.T.A. 308 . The indictment was directly connected with and proximately resulted from the petitioner’s practice of law. It must be assumed that the petitioner’s transactions out of which the charge grew were legitimate, since a defendant is presumed innocent until proven guilty, and the petitioner was never proven guilty. Hal Price Headley, 37 B.T.A. 738 . Cf. Commissioner v. Heininger, supra; Greene Motor Co., 5 T.C. 314 . * * *”

quoted by 1 later decision, including Caspers v. Commissioner

Relies on Commissioner of Internal Revenue v. Heininger · Kornhauser v. United States · Greene Motor Co. v. Commissioner

Good law ✅— No negative treatment on recordhow we know

Decided 1949-06-22

How this case has been cited

Cited by 14 later decisions — most recently January 1980

2 federal appellate ·

8019491950196019701980decided

Later decisions citing this case, by decade. The current decade is in progress, and our corpus holds fewer opinions from the most recent years, so the latest bars are undercounted — not a real decline.

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¶1OPINION.

Mtjedock, Judge:

¶2The amounts of the deductions and their effect upon net loss carry-overs for 1943 are not in dispute. The petitioner claims the deductions under section 23 (a) (1) of the Internal Revenue Code. The respondent does not rely upon the disbarment, but argues that it would be neither ordinary nor necessary for a lawyer in the course of his practice to have to defend himself against a criminal charge of conspiracy to obstruct justice and to defraud the United States. However, it is sufficient if the basis of the indictment was connected with and grew out of the legitimate business transactions of the petitioner. Kornhauser v. United States, 276 U. S. 145; Commissioner v. Heininger, 320 U. S. 467; Citron-Byer Co., 21 B. T. A. 308. The indictment was directly connected with and proximately resulted from the petitioner’s practice of law. It must be assumed that the petitioner’s transactions out of which the charge grew were legitimate, since a defendant is presumed innocent until proven guilty, and the petitioner was never proven guilty. Hal Price Headley, 37 B. T. A. 738. Cf. Commissioner v. Heininger, supra; Greene Motor Co., 5 T. C. 314. Thus, to allow the deduction would not violate public policy. The charge was more than a threat to the petitioner’s law practice.

¶3The respondent also contends that the expenses of the defense are not expenses of the law practice for 1941 and 1942, because the petitioner had ceased to carry on that business prior to 1941. This is contrary to Flood v. United States, 133 Fed. (2d) 173; Moir v. United States, 49 Fed. Supp. 331; and Waters F. Burrows, 38 B. T. A. 236. No sound reason for denying the deductions has been advanced or discovered. The Commissioner erred.

¶4Reviewed by the Court.

¶5Decision will be entered under Bule 60.

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