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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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