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Petitioner paid Bear Stearns $89,788.08 in 1985 and $66,195.92 in
1986 with respect to this advice. No takeover was ever
threatened or attempted.
Section 162(a) permits taxpayers to deduct all the ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business. An expense is ordinary if
it is of common or frequent occurrence in the type of business
involved. Deputy v. du Pont, 308 U.S. 488, 495 (1940); Welch v.
Helvering, 290 U.S. 111, 114 (1933). An expense is necessary if
it is appropriate or helpful to the development of the taxpayer’s
business. Commissioner v. Tellier, 383 U.S. 687, 689 (1966);
Welch v. Helvering, supra.
In contrast, section 263(a)(1) disallows a deduction for
capital expenditures. Expenditures that give rise to a long-term
benefit or are incurred for the purpose of changing the corporate
structure are capital expenditures. INDOPCO, Inc. v.
Commissioner, 503 U.S. 79 (1992); A.E. Staley Manufacturing Co.
v. Commissioner, 105 T.C. 166 (1995). In determining whether
fees paid for business advice and counsel are capital, we look to
the nature of the services performed by the adviser rather than
their designation or treatment by the taxpayer. Honodel v.
Commissioner, 76 T.C. 351, 365 (1981), affd. 722 F.2d 1462 (9th
Cir. 1984); Cagle v. Commissioner, 63 T.C. 86, 96 (1974), affd.
539 F.2d 409 (5th Cir. 1976). Our inquiry thus focuses on
whether the services were performed in the process of giving
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