Tax Legal Services · Primary-source case analysis

Deputy v. du Pont: A Necessary Payment Was Not Automatically an Ordinary Business Expense

By Aneeta Mishra and Timothy Chan

Published May 23, 2026

Deputy v. du Pont involved a major shareholder who borrowed shares and made dividend-equivalent and tax payments to help company executives buy stock, then claimed the payments as business expenses or interest.

A deduction required clear statutory authority

The Court began from the rule that gross income is reduced only when Congress provides a deduction fitting the taxpayer’s facts.

The expense had to be ordinary in the taxpayer’s business

Ordinary meant normal or customary for the type of activity involved. An expense common in one business did not become ordinary in another.

The payments served the corporation’s program

The unusual stock-borrowing arrangement advanced the corporation’s employee-ownership objective and was not shown to be a normal cost of managing the shareholder’s investments.

The payments were not interest

Dividend-equivalent obligations were not compensation for the use or forbearance of money. The Court reversed the appellate judgment and restored the judgment against the refund claim.

Key takeaways

• Identify whose business produced the expense.
• Prove both ordinary and necessary character.
• Compare the payment with normal practice in that business.
• Reserve interest treatment for compensation on genuine indebtedness.