- 29 -
capitalized and are not currently deductible business expenses.3
Respondent also argues that the litigated expenses are neither
recurring, day-to-day expenditures nor are they deductible under
section 174.
C. Tax Rules Governing Advertising Expenditures
1. Introduction
Petitioner’s principal claim is that “graphic design and
advertising activities are indistinguishable in any way that
would justify their inconsistent tax treatment”. Petitioner
supports its claim that graphic design and advertising are
indistinguishable by analyzing and comparing the functions of
those activities. Respondent attempts to counter petitioner’s
functional analysis with a functional analysis of his own,
candidly conceding, however, that his disagreement with
petitioner “is only a matter of degree”.4 Neither party argues
3 Respondent argues that the litigated expenses are allocable
to particular brands and, as so allocated, give rise to an
economic benefit for the remaining life of that brand.
Accordingly, respondent does not believe that the litigated
expenses have a determinable useful life, and respondent would
allow no depreciation deduction for the litigated expenses. We
need not address the question of a depreciation deduction because
petitioner stands on its claim that the litigated expenses are
deductible business expenses in 1982, and has not argued in the
alternative for capitalization and a depreciation deduction in
1982.
4 Indeed, the parties have stipulated similar, in part
identical, functions for graphic design and advertising. Compare
(1) “The graphic designs for a product serve to identify the
(continued...)
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011