Commissioner v. Tellier

Holding

Legal expenses incurred to defend a business operator against criminal prosecution for activities related to the business are generally deductible as ordinary and necessary expenses.

Facts

Tellier deducted legal fees incurred in defending against federal securities-fraud and mail-fraud charges related to his securities business.

Reasoning

Justice Stewart distinguished between expenses incurred in connection with business activity and expenses that violate the policy of frustrating the income-tax laws. Defense of business-related criminal charges does not frustrate clearly defined public policy in the same way as direct violation, and is therefore deductible.