Lykes Energy, Inc. and Subsidiaries - Page 11

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          Respondent contends that the disputed expenditures are                      
          capitalizable because they produced new customers for People's.             
          Petitioners argue that the expenditures are deductible.                     
          Petitioners contend that most of the expenditures relate to sales           
          of appliances.  Petitioners contend that the other expenditures             
          yielded no significant future benefit.                                      
               Agreeing with respondent in part and with petitioners in               
          part, we hold that some of the FEECA expenditures are deductible            
          while others must be capitalized.  Section 162(a) provides a                
          deduction for an accrual method taxpayer like People's only when            
          an expenditure is:  (1) An expense, (2) an ordinary expense,                
          (3) a necessary expense, (4) incurred during the taxable year,              
          and (5) made to carry on a trade or business.  See Commissioner             
          v. Lincoln Sav. & Loan Association, 403 U.S. 345 (1971).  An                
          expense that creates a separate and distinct asset is not                   
          "ordinary".  Id. at 354; see also Norwest Corp. & Subs. v.                  
          Commissioner, 112 T.C.     (1999), and the cases cited therein.             
          Nor is an expense "ordinary" when it generates a significant                
          long-term benefit that extends beyond the end of the taxable                
          year.  See INDOPCO v. Commissioner, 503 U.S. 79, 87-88 (1992);              
          Norwest Corp. & Subs. v. Commissioner, supra.  Recognizing income           
          concomitantly with the recognition of the related expenses is a             
          goal of our income tax system, and a proper matching is achieved            
          when an expense is deducted in the taxable year or years in which           

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