Disallowance means a denial. Some common uses of the term “disallowance” in a legal sense include:
- In the context of taxes, disallowance is a finding by the IRS after an audit that a business or individual taxpayer was not entitled to a deduction or other tax benefit claimed on a tax return.
- In such a case, the IRS either fully disallows the claimed tax benefit or partially allows it by reducing its amount.
- In the context of bankruptcy, cases such as this one from the Ninth Circuit, explain that “disallowance of a claim is a legal determination that the claim under consideration is not allowable by law.”
[Last updated in July of 2021 by the Wex Definitions Team]
