- 35 -
even though advertising may have some future effect on
business activities, as in the case of institutional or
goodwill advertising. See section 1.162-1(a) and
section 1.162-20(a)(2) of the regulations. Only in the
unusual circumstance where advertising is directed
towards obtaining future benefits significantly beyond
those traditionally associated with ordinary product
advertising or with institutional or goodwill
advertising, must the costs of that advertising be
capitalized. See, e.g., Cleveland Electric
Illuminating Co. v. United States, 7 Cl. Ct. 220 (1975)
(capitalization of advertising costs incurred to allay
public opposition to the granting of a license to
construct a nuclear power plant).
Although Rev. Rul. 92-80, supra, may raise some question of
just what benefits are traditionally associated with ordinary
product advertising or with institutional or goodwill
advertising, there is no doubt that such traditional benefits
include not only patronage but also the expectancy of patronage
(i.e., “goodwill”). Compare sec. 1.162-1(a), Income Tax Regs.
(deductible business expenses include “advertising and other
selling expenses”), with sec. 1.162-20(a)(2), Income Tax Regs.
(same as to institutional or goodwill advertising “provided the
expenditures are related to the patronage the taxpayer might
reasonably expect in the future”). Thus, even if advertising is
directed solely at future patronage or goodwill (i.e., ordinary
business advertising), Rev. Rul. 92-80, supra, indicates that
normally the costs are deductible.
The unusual treatment of expenditures for ordinary business
advertising manifest in Rev. Rul. 92-80, supra, is longstanding.
Page: Previous 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 NextLast modified: May 25, 2011