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Dr. Bajaj, that the litigated expenses created intangible assets
that are inseparable from brand equity and goodwill. Indeed,
petitioner argues: “[T]he record uniformly shows that successful
graphic designs, together with successful advertising and other
marketing activities, combine to build an overall brand value or
equity -- the marketing terms for goodwill.” Petitioner argues
that, nevertheless, the litigated expenses are deductible. We
agree. We think that “brand equity”, as described by Dr. Bajaj,
represents “goodwill”, as we understand that term (i.e., “the
expectancy of continued patronage”). See supra sec. I.C.3. That
being the case, and goodwill clearly being a traditional benefit
associated with ordinary business advertising, we must conclude
that the litigated expenses are not capital expenditures simply
because they contribute to brand equity.
E. Conclusion
We have found that the litigated expenses are advertising
expenditures.9 Respondent classifies the litigated expenses as
advertising campaign expenditures and would have us distinguish
between such expenditures and advertising execution expenditures
on the basis that the latter give rise principally to short-term
9 Neither party has asked us to address separately the small
portion (approximately 1.5 percent) of the litigated expenses
that were package design expenditures. Indeed, it is only
petitioner that, in its opening brief, drew our attention to the
distinction between graphic design and package design, see
Findings of Fact, supra sec. II.B., and respondent has not
alleged that we should afford them different treatment.
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