Kanne v. American Factors, Limited. American Factors, Limited v. Kanne

The taxpayer, American Factors, Limited, appeals from a judgment of the United States District Court, District of Hawaii, rendered upon a complaint for a refund of taxes claimed to be overpaid for the tax year 1932. The complaint alleges that the Commissioner of Internal Revenue had erred in disallowing a deduction made in the taxpayer’s return for that year of $568,607.76, as an ordinary and necessary business expense. This sum had been paid by it in that and prior years in the defense of litigation, hereafter called the “Hack-feld litigation,” brought against it and 23 of its shareholders, hereafter called the group of 23. The complaint further alleges the Commissioner also erred in disallowing a deduction for a promissory note for $50,000 which it claims became valueless in 1932. The district court allowed a deduction of but $171,795.26 for the Hack-feld litigation expenses as ordinary and necessary and disallowed $396,812.50 thereof. It also upheld the Commissioner in his denial of the deduction for the $50,000 note.

Mrs. Kanne, the widow of a deceased Collector of Internal Revenue, hereafter called Collector, appeals from the judgment in so far as it awards a refund of taxes…