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1984). Thus, while the monthly fees were connected to an
acquisition in the sense that they were required to be paid in
order to consummate any acquisition, both this Court and the
Court of Appeals for the Ninth Circuit acknowledged that the fees
were insufficiently connected with an acquisition to require
their capitalization. The process of acquisition test,
therefore, does not simply rest on whether an expenditure is
somehow connected to an asset acquisition but focuses more
appropriately on whether the expenditure was directly related to
that acquisition.
We apply the process of acquisition test to the facts at
hand. The salaries and benefits are a capital expenditure if the
underlying services were performed in the acquisition process,
or, in other words, were directly related to ACC’s anticipated
acquisition of installment contracts. See Woodward v.
Commissioner, 397 U.S. 572 (1970); Honodel v. Commissioner,
supra. We conclude that the underlying services were performed
in that process; i.e., the services were directly related to
ACC’s anticipated acquisition of installment contracts. Each of
the employees spent a significant portion of his or her time
working on credit analysis activities, which was the first (and,
in ACC’s business, an indispensable) step in ACC’s acquisition
process, and, but for ACC’s anticipated acquisition of
installment contracts, ACC would not have incurred the salaries
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