Sklar, Greenstein & Scheer, P.C. - Page 11




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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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