Tax Legal Services · Primary-source case analysis

Deputy v. du Pont: Paying Another Party’s Stock-Borrowing Costs Was Not an Ordinary Business Expense

By Aneeta Mishra and Timothy Chan

Published May 15, 2026

Deputy v. du Pont examined deductions claimed by a major shareholder who paid carrying costs so a corporation could use borrowed stock in an employee compensation arrangement.

The expense must belong to the taxpayer’s trade or business

A payment that benefits a corporation does not become the shareholder’s business expense merely because the shareholder expects an indirect benefit.

Ordinary describes a business norm

The Court treated ordinary as requiring a connection to common or accepted conduct in the taxpayer’s own business setting.

Necessary does not eliminate the separate-taxpayer rule

Business usefulness alone could not shift the corporation’s obligation or program costs to the shareholder’s return.

The claimed deductions were denied

The record did not establish qualifying ordinary and necessary expenses of the taxpayer’s business.

Key takeaways

• Identify whose legal obligation is being paid.
• Define the taxpayer’s own trade or business.
• Separate direct business expenses from shareholder investment benefits.
• Consider capitalization, contribution, and related-party rules before claiming a deduction.