In the case of Commissioner of Internal Revenue v. Tellier et UX., 1965, the Supreme Court ruled in favor of Robert L. Tellier, who had deducted legal expenses from his federal income tax return related to his defense against charges for fraudulent securities transactions. The IRS disallowed these deductions and assessed a deficiency, arguing that allowing such deductions would violate public policy by indirectly reducing the financial impact of criminal penalties on offenders. However, upon appeal to the Tax Court and then Second Circuit Court which both sided with Mr.Tellier; it was held that while he engaged in illegal activities resulting in a loss (which is not deductible), his legal fees were ordinary and necessary business expenses under Section 162(a) of Internal Revenue Code hence deductible. The Supreme Court affirmed this decision stating that there's no provision within U.S tax law prohibiting deduction based on illegality or moral turpitude associated with incurred expense.The court further noted that Congress has explicitly specified exceptions to deductibility elsewhere in tax code but didn't do so here thus implying its intent for broad application without regard to alleged public policy considerations raised by government.

In the dissenting opinion for Commissioner of Internal Revenue v. Tellier, Justice Harlan argued that allowing a tax deduction for legal expenses incurred in defending against securities fraud charges would undermine public policy by indirectly subsidizing illegal activities. He contended that while the majority's interpretation of Section 162(a) was technically correct, it failed to consider broader societal implications. The justice believed that Congress did not intend to provide financial relief for those engaged in unlawful conduct and suggested this could lead to an absurd result where criminals are incentivized through tax breaks. Furthermore, he pointed out inconsistencies with other areas of law where deductions were disallowed due to public policy considerations even though they met technical requirements under the Tax Code.