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misplaced. We read INDOPCO to have displaced the body of law set
forth in Briarcliff Candy and its progeny insofar as they allowed
deductibility of investigatory costs in a setting similar to that
at hand; i.e., where an expenditure does not create a separate
and distinct asset. Accord FMR Corp. & Subs. v. Commissioner,
110 T.C. 402 (1998). The Supreme Court granted certiorari in
INDOPCO to resolve the conflict among the Courts of Appeals on
the requirements for capitalization in the absence of a separate
and distinct asset. The Supreme Court in INDOPCO required that
an expense be capitalized when it produces a significant long-
term benefit, even when, as is the case here, the expense does
not produce a separate and distinct asset.
Petitioner's position on the timing of the investigatory
fees is similar to an argument that was rejected by the courts in
Ellis Banking Corp. v. Commissioner, T.C. Memo. 1981-123. There,
the taxpayer was a bank holding company that, under State law,
had to acquire the stock of other banks or organize new banks in
order to expand its business into new geographic markets. The
taxpayer agreed with another bank (Parkway) and certain of
Parkway's shareholders to acquire all of Parkway's stock in
exchange for taxpayer stock. The agreement was contingent on the
occurrence of certain events. Before the acquisition, but
incident thereto, the taxpayer incurred various expenses
conducting a due diligence examination of Parkway's books. These
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