Tax Legal Services · Primary-source case analysis

Tellier: Business-Related Criminal Defense Fees Were Deductible

By Aneeta Mishra and Timothy Chan

Published May 16, 2026 · Updated October 17, 2026

Decision: Comm’r v. Tellier, 383 U.S. 687 (1966).

Commissioner v. Tellier considered deductions for criminal-defense costs arising directly from conduct in the taxpayer’s underwriting and securities-dealing business.

The origin of the expense was the business

The prosecution arose from the taxpayer’s income-producing securities activities rather than a personal matter. He was convicted on all counts; the Supreme Court nevertheless allowed the business-related defense costs. It affirmed the court of appeals on March 24, 1966. Tellier, 383 U.S. at 688–689, 694–695.

Legal defense was ordinary and necessary

Hiring counsel to defend against criminal charges was a normal and appropriate response to business-related accusations.

Deduction was not a reward for wrongdoing

The income-tax system taxes net income and does not generally condition deductions on moral approval.

No sharply defined public policy barred the deduction

Allowing defense costs did not frustrate a specific governmental policy comparable to deducting a fine or penalty.

Key takeaways

• Apply the origin-of-the-claim test to legal fees.
• Separate defense costs from fines, penalties, and forfeitures.
• Document the connection to the taxpayer’s trade or business.
• Check current statutory disallowance rules before relying on Tellier.