A recent ruling by the United States Court of Federal Claims has denied a tax refund claim by Dr. William French Anderson and his wife, Kathryn Anderson. The court found that the couple was not entitled to a refund of income taxes based on legal fees related to Dr. Anderson's criminal conviction. This decision has implications for taxpayers seeking deductions for legal expenses linked to criminal cases.

The court's decision, issued on November 9, 2026, in case number 18-1133T, centers on whether the legal fees incurred by Dr. Anderson could be classified as business expenses. The court ruled that the couple was collaterally estopped from raising their claim, meaning they could not relitigate issues already decided in a previous case. This ruling is significant as it reinforces the principle that taxpayers must clearly demonstrate the business nature of their claimed deductions.

Background

The plaintiffs, William French Anderson, a physician, and his wife Kathryn, have been embroiled in legal battles for years. Dr. Anderson was convicted in 2006 of sexually abusing a minor, a conviction that has been upheld through various appeals. He has since claimed that he is innocent and that his conviction was part of a scheme by the Chinese government to steal his intellectual property related to a cancer drug he was developing.

Dr. Anderson's legal fees stem from his attempts to overturn his conviction and pursue post-conviction remedies. He argued that these fees should be deductible as business expenses under 26 U.S.C. § 162, which allows taxpayers to deduct ordinary and necessary expenses incurred in carrying on any trade or business. Dr. Anderson contended that the legal fees were related to his professional work, as he believed the charges against him were fabricated to sabotage his business.

However, the Internal Revenue Service (IRS) disallowed the deductions for these legal fees, leading the Andersons to file a lawsuit seeking a refund for taxes paid in 2011 and 2012. The case was brought to the Court of Federal Claims after the IRS denied their refund requests.

The Ruling

The court, presided over by Judge Stephen S. Schwartz, granted the government's motion for summary judgment. The ruling emphasized that the plaintiffs were collaterally estopped from relitigating the issue of whether Dr. Anderson's legal fees were deductible as business expenses. The court stated, "Plaintiffs have identified no material factual or legal differences between this case and the Tax Court case," where similar arguments had been previously rejected.

The court noted that the Tax Court had already determined that the activities underlying Dr. Anderson's conviction were personal in nature and did not relate to his business. The Tax Court found that the legal fees were incurred in connection with a state habeas appeal and were not associated with his gene therapy business. The Court of Federal Claims reiterated this finding, stating that any connection between the legal fees and Dr. Anderson's occupation was "tangential."

Impact

This ruling has broader implications for taxpayers who may seek to deduct legal expenses related to criminal charges. The court's reliance on collateral estoppel reinforces the idea that once a court has ruled on a matter, parties cannot revisit that issue in subsequent cases without demonstrating significant differences. This decision highlights the importance of establishing a clear business nexus for any claimed deductions, especially in cases involving criminal convictions.

Taxpayers must be aware that legal expenses incurred in defending against criminal charges may not be deductible if they are deemed to be personal in nature. The ruling serves as a cautionary tale for individuals seeking to navigate the complexities of tax deductions related to legal fees.

What's Next

The Andersons have limited options for appealing this decision. While they may seek further legal avenues, the court's ruling is a significant setback for their claims. There are currently no related cases pending that could impact this ruling.