T.C. Memo. 1998-252
UNITED STATES TAX COURT
RJR NABISCO INC. (FORMERLY R.J. REYNOLDS INDUSTRIES, INC.)
AND CONSOLIDATED SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3796-95. Filed July 8, 1998.
P is the common parent of an affiliated group of
corporations making a consolidated return of income.
M1, a member of the affiliated group, claimed a
deduction pursuant to sec. 162, I.R.C., for graphic
design expenditures relating to cigarette package
designs. M2, another member of the affiliated group,
reported a portion of an international arbitration
award that it received as an amount realized on the
sale or other disposition of property. R determined a
deficiency in P's consolidated income tax liability,
disallowing the deduction as a sec. 162, I.R.C.,
expense and recharacterizing the graphic design
expenditures as capital expenditures. R further
treated the disputed portion of the arbitration award
as ordinary income. Held: Graphic design expenditures
for cigarette packages are advertising expenses,
deductible under sec. 162, I.R.C. Held, further, the
disputed portion of the arbitration award is an amount
realized on the sale or other disposition of property.
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