114 T.C. No. 27
UNITED STATES TAX COURT
AMERICAN STORES COMPANY AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13142-97. Filed May 26, 2000.
P purchased the stock of LS. Prior to purchasing
LS, P had negotiated with the Federal Trade Commission
to satisfy the antitrust concerns about the purchase.
Shortly after P’s purchase of LS, and 1 day after the
FTC entered its final consent order, the State of
California filed an antitrust suit in Federal District
Court objecting to P’s purchase of LS. The State asked
for various remedies including divestiture. The
District Court issued a temporary injunction
prohibiting P from integrating the business operations
of LS and P. The District Court’s opinion was the
subject of an appeal and was ultimately resolved by the
Supreme Court. Thereafter, P and the State settled the
antitrust suit. P incurred substantial legal fees in
defending against the State’s antitrust suit. Those
legal fees were deducted as ordinary and necessary
business expenses. R disallowed those deductions based
on R’s determination that the legal fees should be
capitalized.
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