David J. Lychuk and Mary K. Lychuk, et al. - Page 2




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               (collectively, offering expenditures) relating to its                  
               offering of notes in 1993 and a second offering that                   
               was planned in 1993 and abandoned in 1994.                             
                    Held:  The salaries and benefits are capital                      
               expenditures; A’s payment of these items was directly                  
               related to its anticipated acquisitions of assets with                 
               expected useful lives exceeding 1 year.                                
                    Held, further, The overhead expenses may be                       
               deducted currently under sec. 162(a), I.R.C.; A’s                      
               payment of these items was not directly related to the                 
               anticipated acquisitions, and any future benefit that A                
               received from these expenses was incidental to its                     
               payment of them.                                                       
                    Held, further, sec. 165(a), I.R.C., allows A to                   
               deduct the portion of the capitalized salaries and                     
               benefits that was attributable to installment contracts                
               which it never acquired; A may deduct those amounts for                
               the respective years in which it ascertained that it                   
               would not acquire the related contracts.                               
                    Held, further, A must capitalize all of the                       
               offering expenditures; A’s payment of these                            
               expenditures was anticipated to provide A with                         
               significant future benefits.                                           
                    Held, further, sec. 165(a), I.R.C., allows A to                   
               deduct in 1994 the portion of the capitalized offering                 
               expenditures that was attributable to the abandoned                    
               offering.                                                              


               Oksana O. Xenos, for petitioners.*                                     
               Eric R. Skinner, for respondent.                                       

               LARO, Judge:  Petitioners petitioned the Court to                      
          redetermine deficiencies attributable primarily to adjustments              
          which respondent made to their income from a subchapter S                   



               * Briefs of amici curiae were filed by Robert A. Rudnick, B.           
          John Williams, Jr., James F. Warren, and Richard J. Gagnon, Jr.,            
          as counsel for Federal Home Loan Mortgage Corporation (FHLMC),              
          and by Felix B. Laughlin and Anna-Liza Harris as counsel for                
          Federal National Mortgage Association (FNMA).                               





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