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Bowers v. Lumpkin

Citation. Bowers v. Lumpkin, 140 F.2d 927, 44-1 U.S. Tax Cas. (CCH) P9200, 32 A.F.T.R. (P-H) 201, 151 A.L.R. 1336 (4th Cir. S.C. Feb. 4, 1944)
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Brief Fact Summary.

Plaintiff filed suit to reversed and IRS determination that legal fees were not an ordinary and necessary business expense. Plaintiff spent in excess of $26,000 defending her purchase of stock of a corporation owning sale and distribution rights of coca-cola syrup.

Synopsis of Rule of Law.

Legal expenses defending title to property are not ordinary and necessary expenses of carrying on a trade or business may be deducted from gross income.


Plaintiff, Mrs. Lumpkin, filed suit to recover overpaid federal income taxes. Plaintiff had a life interest in one-half of the stock of corporation which owned sale and distribution rights to coca-cola syrup. The life interest was under a trust created by her former husband’s will. Plaintiff purchased remaining stock of the corporation from other trustees to whom it was bequeathed. The Attorney General sued to invalidate the sale because the stock was bequeathed to those trustees in order to establish an orphanage. Plaintiff spent litigation costs defending the sale and won. She incurred $26,798.22 in legal expenses. She deducted those expenses from her gross income. The Commissioner of the Internal Revenue Service did not allow the deductions and assessed taxes and interests. Plaintiff paid under protest and filed suit and won in District Court.


May Plaintiff claims the litigation costs as a deduction?


Circuit Judge Soper issued the opinion for the United States Fourth Circuit Court of Appeals in reversing the District Court and holding that the deduction should not be allowed.


The Court Appeals found that money spent in defending or perfecting title to property is a cost of the property and not a deductible expense. In this case, Plaintiff’s legal fees were for defending the ownership stock, and are not “ordinary and necessary expenses” that may be deducted from gross income.

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