Tax Legal Services · Primary-source case analysis

Gilmore: The Origin of the Claim Controls Whether Legal Fees Are Deductible

By Aneeta Mishra and Timothy Chan

Published September 2, 2026

United States v. Gilmore concerned legal fees incurred in divorce litigation. The taxpayer argued that losing the marital-property dispute threatened control of his automobile dealerships and that the fees therefore protected income-producing assets.

The taxpayer focused on the business consequences

The divorce claims exposed substantial stock interests to possible transfer or sale. Because those interests produced the taxpayer's income, he characterized the defense costs as expenses for conserving property held for income production.

The Court adopted the origin-of-the-claim test

The controlling question was what transaction or relationship gave rise to the litigation, not what property might be affected by its outcome. This approach avoids changing the tax character of identical claims according to the size or composition of a particular taxpayer's assets.

The claims arose from the marital relationship

The spouse's claims originated in personal and family rights asserted in divorce, even though the requested relief could have affected business holdings. The legal expenses therefore retained a personal character.

The deduction was denied

Because the origin of the controversy was personal, the litigation costs were nondeductible personal expenses. The Court reversed the judgment that had allowed the deduction based on the potential business consequences.

Key takeaways

• Identify the transaction or relationship that generated each legal claim.
• Do not classify fees solely by the assets placed at risk.
• Allocate invoices when separate claims have different origins.
• Preserve pleadings, engagement terms, and billing narratives that show the work performed.