Running head: A REVIEW OF COURT CASES

A Review of Court Cases

Name

Institution

Date

 
A REVIEW OF COURT CASES 2

           Every single business operation is governed by regulations that ensure a smooth running

of operations. In case of breach of these regulations, then a legal court process is initiated for

justice to be served. All court cases have various implications that favor either the appellant or

the appellee or otherwise decided by the judge presiding over the case. This instance is well

illustrated in two cases outlined in the following context. This paper reports two court cases

related to business entrepreneurship. 

Case 1

Kopp's Company, Inc., Appellant, v. the United States of America, Appellee, 636 F.2d 59 (4th

Cir. 1980)

           As stated above, Kopp’s Co., Inc., a Maryland corporation involved in lumber and

building supply business, was the appellant in the case. The case was based on account of

various oral arguments, facts, and briefs. The case had its roots after an accident that occurred

back on 17th November 2017. Wayne, son to Jean Kopp, had caused the accident while on leave

making permissive and personal use car belonging to the company. The accident left Warren

Danner the driver of the other vehicle, a quadriplegic. Warren, accident’s victim, went ahead and

filed a suit Jean, Wayne, Earl, and the Company for damages amounting to $ 4,200,000 

           In order to reduce strain on its finances, the company opted to settle down the damages

out of court with Danner. In so doing, the liability insurer for the company was to pay $102,000,

to Danner, further, the Company was also to pay $50,000. In the process, the Company incurred

legal fees amounting to $3,068. In its income tax returns, the company subtracted all the

expenses incurred regarding them as just necessary and ordinary operational expenditures under

section 162 of the code. The appellant argued that the deduction was lawful as depicted in
A REVIEW OF COURT CASES 3

section 162 (a). However, the District Court rejected it. The ruling was arrived at after

consideration of the United States V. Gilmore, 372 U.S 39, 83 S. Ct. 623, (1963). 

Case 2

JAMES A. CAVANAUGH, JR., Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

           During a 2002 Thanksgiving holiday, Mr. Cavanaugh chief executive and the only

shareholder of Jani-King International Company. decided to go for a vacation to the Caribbean

with Robinson, where he had a residence. He was accompanied by his girlfriend Colony Anne

and two employees Erika Fortner and Ronald Walker. During the vacation, Colony Anne died,

and it was later found that her death was as a result of an overdose of cocain. Consequently,

Colony’s mother, Ms. Robinson, filed a suit against Jani-King and Cavanaugh. She purported

that the death of her daughter was caused by the Jani-king through its employers who were

acting in the course of their day-to-day work (p. 1280). 

           Upon discovery, Cavanaugh faulted the allegations and explained that they were

“frivolous” nonetheless, he was willing to pay $250,000 in his defense personally. The

company’s counsel said that Ms. Robin was highly likely to lose the case, but a negative

consequence on the company’s reputation would occur. The counsel ultimately agreed to pay up

to $5 million. The parties finally settled for $2,300,000 million, and Cavanaugh paid $2.5

million. When filing tax returns, Jani-King deducted reimbursement payment, settlement

payment, and related legal expenses as necessary and ordinary expenses (p. 1281). 

           The IRS disallowed the deductions prompting Cavanaugh to fight for the deductions even

though he had paid $2,300,000 to avoid prolonged litigation as well as negative publicity. The

Court maintained that the deductions were unlawful. Just like in the first case, the court referred
A REVIEW OF COURT CASES 4

to the Unites States V. Gilmore, 372 U.S (1963), controls (p. 1282). In this case, it was held that,

when determining deductibility of litigation costs as business expenditures, the character and

origin of the claim concerning which a cost was experienced, rather than its impending impacts

on the fortunes of the taxpayer. 

           In a nutshell, for both cases, we can argue that for the aforesaid reasons, both outcomes

are affirmed.