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American Stores’ affiliated group gross revenue of
$22,450,415,818 for the 1990 tax year.
In the 1989 tax year return, petitioner did not claim an
ordinary and necessary business expense deduction for the legal
fees attributable to the FTC proceeding involving the acquisition
of Lucky Stores. Petitioner incurred approximately $2.6 million
in such legal fees in the 1989 tax year. Petitioner also did not
deduct investment banking fees incurred in the acquisition of
Lucky Stores stock. Instead, petitioner capitalized all of these
expenditures as costs incurred in the process of acquiring Lucky
Stores.
From June of 1988 until the end of the 1989 tax year,
American Stores’ subsidiary, Lucky Stores, paid $1,074,867 in
legal fees to defend against the claims of the attorney general
of California for violations of Federal and State antitrust laws
arising from the acquisition of Lucky Stores. American Stores
charged these legal fees to account No. 650800/7025, Lucky
Acquisition, and moved these expenses to American Food and Drug,
Inc. In the financial books and records of American Food and
Drug, Inc., for the 1989 tax year, American Stores capitalized
the $1,074,867 for legal fees associated with the antitrust
litigation with the attorney general of California. Petitioner’s
accountants prepared a journal entry for these legal fees.
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