Document: 503 U.S. 79 112 S.Ct. 1039 117 L.Ed.2d 226 INDOPCO, INC., Petitioner,v.COMMISSIONER OF INTERNAL REVENUE. No. 90-1278. Argued Nov. 12, 1991. Decided Feb. 26, 1992. Syllabus On its 1978 federal income tax return, petitioner corporation claimed a deduction for certain investment banking fees and expenses that it incurred during friendly acquisition in which was transformed from publicly held, freestanding into wholly owned subsidiary. After respondent Commissioner disallowed the claim, sought reconsideration Tax Court, adding to claim deductions legal other acquisition-related expenses. The Court ruled because long-term benefits accrued acquisition, expenditures were capital nature not deductible under § 162(a) of Internal Revenue Code as "ordinary necessary" business Appeals affirmed, rejecting petitioner's argument that, did "create or enhance . separate distinct additional asset," see v. Lincoln Savings & Loan Assn., 403 345, 354, 91 1893, 1899, 29 519, they could be capitalized 263 Code. Held: Petitioner's do qualify 162(a). Deductions are exceptions norm capitalization allowed only if there is clear provision them taxpayer has met burden showing right deduction. supra, holds simply creation asset may sufficient condition classification expenditure, prerequisite such classification. Nor does prohibit reliance on future benefit means distinguishing an ordinary expense expenditure. Although presence incidental warrant capitalization, taxpayer's realization beyond year expenditure important determining whether appropriate treatment immediate capitalization. record instant case amply supports lower court's findings transaction produced significant extending question. Pp. 83-90. 918 F.2d 426 (CA3 1990) affirmed. BLACKMUN, J., delivered opinion unanimous Court. Richard J. Hiegel, New York City, petitioner. Kent L. Jones, Washington, D.C., respondent. Justice BLACKMUN 1 In this we must decide professional by target course takeover 2 * Most relevant facts stipulated. See App. 149. Petitioner Inc., formerly named National Starch Chemical Corporation hereinafter referred Starch, Delaware manufactures sells adhesives, starches, specialty chemical products. October 1977, representatives Unilever United States, also (Unilever),1 expressed interest acquiring one suppliers, through transaction. at time had outstanding over 6,563,000 common shares held approximately 3700 shareholders. stock listed Stock Exchange. Frank Anna Greenwall corporation's largest shareholders 14.5% common. Greenwalls, getting along years concerned about their estate plans, indicated would transfer tax-free arranged. 3 Lawyers representing both sides devised "reverse subsidiary cash merger" felt satisfy Greenwalls' concerns. Two new entities created—National Holding Corp. (Holding), Unilever, NSC Merger, have transitory existence. exchange specifically designed 351 Code, 26 U.S.C. 351, share nonvoting preferred each received Any so exchanged converted merger Starch. 4 November Starch's directors formally advised Unilever's proposed At time, Debevoise, Plimpton, Lyons Gates, counsel, told law fiduciary duty ensure fair thereupon engaged firm Morgan Stanley Co., evaluate shares, render fairness opinion, generally assist event emergence hostile tender offer. 5 originally suggested price between $65 $70 per share, negotiations resulted final offer $73.50 figure found fair. Following approval board issuance favorable private ruling Service those who preferred, consummated August 1978.2 6 charged fee $2,200,000, with $7,586 out-of-pocket $18,000 fees. Debevoise $490,000, $15,069 aggregating $150,962 miscellaneous items accounting, printing, proxy solicitation, Securities Exchange Commission fees—in connection No issue raised propriety reasonableness these charges. 7 return short taxable ended 15, 1978, $2,225,586 paid Stanley, but deduct $505,069 Upon audit, issued notice deficiency. redetermination States asserting, however, but, well, incurred. 8 unreviewed decision, therefore necessary expenses." Commissioner, 93 T.C. 67 (1989). court based holding primarily acquisition. Id., 75. Third Circuit upholding Court's "both enormous resources possibility synergy arising served betterment Starch." 426, 432-433 (1990). doing, rejected contention disputed 519 (1971), F.2d, 428-431. We granted certiorari resolve perceived conflict among Courts Appeals.3 --- ----, 111 2008, 114 96 (1991). II 9 Section allows "all carrying any trade business." contrast, no expenditure—an "amount out buildings permanent improvements betterments made increase value property estate." 263(a)(1). primary effect characterizing payment either concerns timing cost recovery: While currently deductible, usually amortized depreciated life asset, or, where specific useful can ascertained, deducted upon dissolution enterprise. §§ 167(a) 336(a); Treas.Reg. 1.167(a), CFR 1.167(a) Through provisions these, endeavors match revenues period properly attributable, thereby resulting more accurate calculation net purposes. See, e.g., Idaho Power 418 1, 16, 94 2757, 2766, 41 535 (1974); Ellis Banking 688 1376, 1379 (CA11 1982), cert. denied, 463 1207, 103 3537, 77 1388 (1983). 10 exploring relationship expenditures, noted "familiar rule" "an matter legislative grace clearly taxpayer." Interstate Transit Lines 319 590, 593, 63 1279, 1281, 87 L.Ed. 1607 (1943); Deputy Du Pont, 308 488, 493, 60 363, 366, 84 416 (1940); Colonial Ice Co. Helvering, 292 435, 440, 54 788, 790, 78 1348 (1934). notion finds support various aspects enumerated thus subject disallowance favor 161 261. Nondeductible exhaustively Code; rather than providing "complete list nondeductible expenditures," Savings, U.S., 358, S.Ct., 1901, serves general current 2766. For reasons, strictly construed "as therefor." 790; 366.4 11 examined interrelationship Code's provisions.5 occasion parse explore requirements. example, determined 162(a), item (1) 'paid year,' (2) 'carrying business,' (3) 'expense,' (4) 'necessary' expense, (5) 'ordinary' expense." 352, 1898. Tellier, 383 687, 689, 86 1118, 1119, 16 185 (1966) (the term "necessary" imposes "only minimal requirement 'appropriate helpful' 'the development [taxpayer's] " quoting Welch 290 111, 113, 8, 212 (1933)); 495, 367, (1940) (to "ordinary," relate "of frequent occurrence type involved" ). recognized, "decisive distinctions" "are degree kind," 114, 9, "turns special facts," 496, cases sometimes appear difficult harmonize. 116, 9. 12 contends decision changed familiar backdrops announced exclusive test identifying "creation enhancement asset" deductibility rule exception. Brief 16. agree, conclude overread Savings. 13 asked premiums, required statute savings loan association Federal Insurance (FSLIC), argued 263, contended. "additional" purpose provide FSLIC secondary reserve fund insured institution retained pro rata recoverable situations, "serv[e] create what essentially asset." 1899. "[A]s inevitable consequence," concluded, "the let alone 162(a)." Ibid. 14 stands simple proposition "serves distinct" should 263. It follows, assets consider unlike premiums there, cannot read preclude circumstances. short, well General Bancshares 326 712, 716 (CA8) (although "resul[t] corporate not, fact, expenses" ), 379 832, 85 62, 40 (1964). 15 our statement ensuing some aspect controlling" expenditure.6 mere benefit—"some aspect"—may undeniably Mississippi Corp., 405 298, 310, 92 908, 915, 31 217 (1972) (expense "is year" expenditure); Central Texas Assn. 731 1181, 1183 (CA5 1984) ("While controlling all cases, nonetheless remains prominent, predominant, characteristic item."). Indeed, text provision, 263(a)(1), refers "permanent betterments," itself envisions inquiry duration extent realized taxpayer. III applying foregoing principles case, demonstrated banking, legal, costs 17 attempts dismiss "entirely speculative" "merely incidental," 39-40, Appeals' extended question supported record. commenting "Progress Report" observed company "benefit greatly availability resources, especially area basic technology." 43. id., 46 (Unilever "provides opportunities resources"). Stanley's report concerning possible combination management "feels exist organization given a) chemical, paper, plastics packaging operations b) strong consumer products orientation Inc." 77-78. 18 addition anticipated resource-related benefits, obtained transformation Unilever. viewed "swapping 3500 one." 427; 223. longer even terms "substantial" shareholder-relations traded incurs, including reporting disclosure obligations, battles, derivative suits. 24. interests administrative convenience simplicity, eliminate previously authorized unissued reduce total number 8,000,000 1,000. T.C., 74. 19 long recognized 'incurred changing structure expenses.' 715 (quoting Farmers Union 300 197, 200 (CA9), 371 861, 83 117, 99 (1962)). B. Bittker Eustice, Income Taxation Corporations Shareholders, pp. 5-33 5-36 (5th ed. 1987) (describing "well-established reorganizing restructuring entity 162(a)). been wide variety changes structure.7 decisions require "in business,"8 courts frequently characterized betterment, continuing existence indefinite somewhat year." 715. Mills Estate, Inc. 206 244, 246 (CA2 1953). rationale behind applies equally charges case. IV 20 fact controlling; bear indicia treated such. 21 judgment 22 ordered. company. Its then principal subsidiaries Lever Brothers Thomas Lipton, Approximately 21% preferred. remaining 79% cash. 14. Compare Circuit's 430, NCNB 684 285, 293-294 (CA4 1982) (bank expansion-related planning reports, feasibility studies, regulatory applications identifiable assets," 162(a)), Briarcliff Candy 475 775, 782 1973) (suggesting "brought radical shift emphasis," making dependent creates enhances asset). 1184 (inquiring establishment branches "creates proper treatment). Johnson, Expenditures Incurred Target Acquisitive Reorganization Dividends Notes 463, 478 (1991) (noting importance "strong capitalization" system). (1974) (equipment depreciation allocable construction facilities capitalized); (cooperatives' purchases Bank Cooperative deductible); (1971) (additional bank insurers expenditures); Woodward 397 572, 90 1302, 25 577 (1970) (legal, appraisal purchasing minority Hilton Hotels 580, 1307, 585 (consulting, proceeding (legal defending against securities fraud 162(a)); Heininger, 320 467, 64 249, 88 171 (1943) disputing adverse postal designation expenses); (payment parent cover subsidiary's operating deficit expense); (expenses shareholder helping executives acquire Helvering Winmill, 305 79, 59 45, 52 (1938) (brokerage commissions (1933) (payments former employer's debts expenditures). absent separate-and-distinct-asset will "principled basis" differentiate expenditures. 37-41. note, grounding status unlikely produce bright-line desires, "asset" flexible amorphous. Notes, 477-478. McCrory 651 828 1981) (statutory 368(a)(1)(A)); Bilar Tool Die 530 708 (CA6 1976) (division two parts); E.I. du Pont de Nemours 432 1052 1970) (creation hold prior joint venture); (stock dividends), (1964); 244 1953) (recapitalization). Motion Picture Capital 80 872, 873-874 1936) (recognizing merger, mergers occurrences," declining find part activities," concluding Greenstein, Deductibility Takeover Costs 69 Taxes 48, 49 facilitate ownership "carrying [a] business"

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