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Discussion
We decide for the first time whether section 1.404(a)-3(d),
Income Tax Regs., restricts an employer/plan sponsor's right to
deduct an expense related to a qualified pension plan when the
expense is ordinary and necessary to the employer but not
"recurring in nature". Petitioner argues the regulation does not
restrict its right to deduct such a nonrecurring expense because
the text provides explicitly for deduction of "any" expense that
satisfies the "ordinary and necessary" test of section 162.
Respondent argues the regulation is read more narrowly to permit
deduction of only "administrative" expenses which are ordinary
and necessary and recurring in nature. Respondent relies on Rev.
Rul. 86-142, 1986-2 C.B. 60, to support this position. This
ruling, as discussed in detail below, concludes nonrecurring
expenses paid by an employer are not deductible under this
regulation. We disagree.
Our analysis starts at section 162(a), which provides
generally: "There shall be allowed as a deduction all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business".6 However, if
contributions otherwise deductible under section 162 are made by
6Respondent does not make an issue of whether petitioner
"incurred" the expenses but rather argues only that the "ordinary
and necessary" element is not met due to the nonrecurring
character of the expenses.
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