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Its genesis is in efforts by taxpayers in the early years of
income taxation to capitalize the costs of large-scale
advertising campaigns and to amortize the capitalized amounts
over a period of years, efforts that were consistently opposed by
the Commissioner on the ground that allocating advertising
expenditures between current expenses and capital outlays was not
feasible. See, e.g., Northwestern Yeast Co. v. Commissioner,
5 B.T.A. 232, 237 (1926). Although the courts did not entirely
foreclose the propriety of capitalizing some advertising
expenditures, taxpayers found it difficult to prove an
appropriate allocation between current and long-term benefits.
In time, this insistence on evidence hardened into a rule of law
that capitalization is proper only if the taxpayer can establish
“that the future benefits can be determined precisely and are not
of indefinite duration.” A. Finkenberg’s Sons, Inc. v.
Commissioner, 17 T.C. 973, 982-983 (1951); see also E.H. Sheldon
& Co. v. Commissioner, 214 F.2d 655, 659 (6th Cir. 1954)
(taxpayer must show “with reasonable certainty the benefits
resulting in later years from the expenditure”), affg. in part,
and revg. and remanding in part 19 T.C. 481 (1952). See the
discussion of advertising expenses in Bittker & Lokken, Federal
Taxation of Income, Estates and Gifts, par. 20.4.5 at 20-86 to
20-88 (2d ed. 1989). But see Durovic v. Commissioner, 542 F.2d
1328 (7th Cir. 1976) (cost of free samples must be capitalized;
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