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diligence costs of $23,700, and officers’ salaries of $150,000
which respondent had determined were attributable to the
transaction. Most ($83,450) of the investigatory costs related
to services rendered by a law firm, before Davenport agreed to
participate in the transaction. The remaining ($4,120)
investigatory costs related to services performed by the law firm
in investigating whether, after the transaction, Norwest’s
director and officer liability coverage would protect Davenport’s
directors and officers for acts and omissions occurring before
the transaction. The due diligence costs related to services
performed by the law firm in connection with Norwest’s due
diligence review. The disallowed officers’ salaries were
attributable to services performed in the transaction.
We held that section 162(a) did not let Davenport deduct any
of the disputed costs. Our holding followed our conclusion that
all of the costs bore a sufficient nexus to a transaction
producing a significant long-term benefit to fall within the
rules of capitalization as set forth primarily in INDOPCO, Inc.
v. Commissioner, 503 U.S. 79 (1992). Upon appeal, the
Commissioner conceded that section 162(a) allowed Davenport to
deduct the investigatory costs of $83,450 because they were
attributable to the investigatory stage of the transaction. That
concession followed the Commissioner’s release of Rev. Rul. 99-
23, 1999-1 C.B. 998, 1000, which holds that
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