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

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.

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.