## Facts

- Don Gilmore, a California resident, was president and controlling shareholder of three franchised automobile dealerships; his income came almost entirely from salary and dividends tied to that ownership.
- Gilmore’s wife filed divorce proceedings in California state court seeking divorce, alimony, and a community-property interest in Gilmore’s controlling stock.
- Gilmore resisted the property and alimony claims and ultimately obtained a divorce decree without alimony, affirmed by the California Supreme Court.
- Gilmore incurred substantial legal fees in the divorce litigation.
- For tax years 1953 and 1954, Gilmore deducted part of the fees under Internal Revenue Code of 1939 § 23(a)(2) as “ordinary and necessary” expenses for the “conservation” of income-producing property.
- The Commissioner disallowed the deductions as nondeductible personal or family expenses under § 24(a)(1) and assessed deficiencies.
- Gilmore paid and sued for a refund in the Court of Claims, which allowed the deductions on the theory that the fees protected his controlling stock and income stream.
- The Supreme Court granted certiorari.

## Issues

1. Whether legal fees incurred to resist a spouse’s divorce-related claims to the taxpayer’s stock and related interests are deductible under I.R.C. 1939 § 23(a)(2) as expenses for the conservation of property held for the production of income.
2. Whether such fees are barred as nondeductible “personal, living, or family expenses” under I.R.C. 1939 § 24(a)(1).
3. Whether deductibility of litigation expenses turns on the origin and character of the claim or on the potential financial consequences of the litigation.

## Decision

- The Supreme Court reversed the Court of Claims and remanded.
- The Court held that none of Gilmore’s divorce-related legal expenditures were deductible under § 23(a)(2).
- The Court adopted an “origin of the claim” test: deductibility depends on the origin and character of the claim giving rise to the expense, not on the consequences the litigation might have for the taxpayer’s finances.
- Because the wife’s claims arose from the marital relationship, the expenses were personal and nondeductible under § 24(a)(1), even if losing the case could have affected Gilmore’s income-producing assets.
- Justices Black and Douglas dissented, favoring a broader reading that would have allowed the deduction.

## Legal Principles

- Deductibility of litigation expenses under § 23(a)(2) (now generally reflected in § 212) is determined by the origin and character of the claim, not by the potential effect of the litigation on the taxpayer’s income or property.
- Claims arising from the marital relationship are personal in origin; legal fees incurred to litigate such claims are nondeductible personal or family expenses under § 24(a)(1) (now generally reflected in § 262), even when the dispute involves income-producing property.
- A consequences-based approach (treating expenses as deductible because the litigation may protect business assets or income) is improper where the claim itself originates in personal or family relations.

## Conclusion

The Court held that divorce litigation fees incurred to defeat a spouse’s claims to income-producing property are nondeductible personal expenses because the claims originate in the marital relationship; the tax result turns on the claim’s origin, not its financial stakes.


United States v. Gilmore, 372 U.S. 39 (1963)