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Davis v. Commissioner, 151 F.2d 441 (8th Cir. 1945), affg. 4 T.C.
329 (1944); Stokely-Van Camp, Inc. v. United States, 21 Cl. Ct.
731, 753, (1990), affd. 974 F.2d 1319 (Fed. Cir. 1992).
Section 311(d)(1) provides that if a corporation distributes
appreciated property to a shareholder, then gain shall be
recognized as if the property distributed had been sold at the
time of the distribution. See also Pope & Talbot, Inc., & Subs.
v. Commissioner, 104 T.C. 574 (1995). Thus, where appreciated
assets are distributed by a corporation, section 311(d)(1) treats
such a distribution as a deemed sale. We see no reason why
transaction costs should be treated differently in a deemed sale
than they are in an actual sale. Accordingly, we hold that
petitioner may offset its expenses incurred in connection with
the distribution against its section 311(d) gain.
The next issue is whether petitioner may deduct investment
banking fees for advice regarding potential hostile takeovers
under section 162. Petitioner retained Bear, Stearns & Co. (Bear
Stearns) in October 1984 to advise its board of directors
regarding potential unfriendly proposals to purchase the company.
Pursuant to this arrangement, Bear Stearns agreed to review
petitioner’s strategies, financial position, charter documents,
etc., in order to obtain a level of understanding that would
allow Bear Stearns to evaluate instantly any future proposal to
acquire petitioner, as well as recommend any changes that would
strengthen management’s negotiating position in such an event.
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