COMMISSIONER V. TELLIER 383 US 687 (TAX)

The question presented in this case is whether expenses incurred by a taxpayer in the unsuccessful defense of a criminal prosecution may qualify for deduction from taxable income under the Internal Revenue Code, which allows a deduction of "all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Respondent Tellier was engaged in the business of underwriting the public sale of stock offerings and purchasing securities for resale to customers.

In 1956, he was brought to trial upon a 36-count indictment that charged him with violating the fraud section of the Securities Act of 1933 and the mail fraud statute and with conspiring to violate those statutes.

He was found guilty on all counts and was sentences to pay USD 18,000 fine and to serve 4 and a half years in prison. The judgment of conviction was affirmed on appeal.

In his unsuccessful defense of this criminal prosecution, the respondent incurs and paid USD 22,964 in legal expenses. He claimed a deduction for that amount on his federal income tax return for that year. The Commissioner disallowed the deduction and was sustained by the Tax Court. The CA reversed in a unanimous en banc decision, and we granted certiorari.

Where as here, an accused exercises his constitutional right to employ counsel to defend against criminal charges, there is no offense to public policy and deduction of the expenses of his defense is proper.