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Tax Regs. In this case, the plan provides the employer the
option of paying expenses, but does not mandate payment by the
employer. Respondent concedes that this elective language means
the expenses were not provided for by contributions under the
plan.10 Thus, payment of the litigation costs is not treated as
an actual or constructive contribution to the plan subject to
section 404, and the allowance of the deduction is governed
instead by section 162, to the extent the costs are ordinary and
necessary expenses incurred by petitioner in connection with the
plan.
Section 162 allows for a deduction if the expense was: (1)
Ordinary and necessary; (2) paid or incurred during the taxable
year; (3) in carrying on the taxpayer's trade or business. See
sec. 162(a); Welch v. Helvering, 290 U.S. 111 (1933). Ordinary
is determined by time, place, and circumstance. The kind of
transaction out of which the obligation arose and its normalcy in
9(...continued)
expenses, if the employer then pays the expenses directly a
deduction could be a "double dip".
10Respondent maintains:
Since the expenses at issue were paid directly by
the employer, they are "not provided for by
contributions under the plan" within the meaning of
Treas. Reg. sec. 1.404(a)-3(d). As a result, the issue
in this case is whether the expense for the Prudential
litigation was an ordinary and necessary expense for
the Retirement Plan and therefore deductible under
I.R.C. � 162.
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