Facts
In Lohrke, the petitioner was a licensor and inventor as well as President for Lohrke Textiles, Inc. (Textiles). Although petitioner and Textiles are separate taxable entities, petitioner paid for the damages caused by a defective shipment of fiber for which he owned the patent which created it. Petitioner felt that to protect his business it was both "ordinary and necessary" to reimburse the customers to save his business reputation. The respondent argued that because petitioner was not obligated to pay, this payment did not fall under the definition of an "ordinary and necessary" business expense found in 26 U.S.C.S. § 162(a) and should consequently not be deductible.
Read more about this topic: Lohrke V. Commissioner
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