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are related to the acquisition of the installment contracts but
argue primarily that the expenditures are deductible as routine,
recurring business expenses arising primarily from an employment
relationship rather than from a capital transaction. Petitioners
argue secondly that the installment contracts expenditures are
deductible because they are not described in either section
263(a) or the related regulations.
We agree with respondent in part and with petitioners in
part. We agree with respondent that ACC must capitalize the
installment contracts expenditures to the extent of the salaries
and benefits.9 We conclude that ACC’s payment of the salaries
and benefits was directly related to its acquisition of the
installment contracts. We agree with petitioners that ACC may
9 We allow ACC to deduct under sec. 165(a) the portion of
those expenditures that was attributable to the installment
contracts which it never acquired. ACC may deduct those amounts
for the respective years in which it ascertained that it would
not acquire the related contracts. See Ellis Banking Corp. v.
Commissioner, 688 F.2d 1376, 1382 (11th Cir. 1982), affg. in part
and remanding in part T.C. Memo. 1981-123. See generally PNC
Bancorp, Inc. v. Commissioner, 110 T.C. 349, 359, 362 (1998)
(Commissioner allowed banks to deduct loan origination costs
expended in connection with loans which were not successfully
approved), revd. on other grounds 212 F.3d 822 (3d Cir. 2000).
Respondent argues that petitioners have failed to prove the
portion of the expenditures attributable to the installment
contracts which it never acquired. We disagree. We have found
as a fact that ACC did not acquire approximately 62 percent of
the installment contracts which were offered to it in each of the
subject years. We hold that ACC may deduct for 1993 and 1994 62
percent of the installment contracts expenditures attributable to
installment contracts which in those years it decided not to
acquire. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d
Cir. 1930).
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