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the distinction between the case at hand, and the
INDOPCO case lies in the relationship between the
expense at issue and the long term benefit. In
INDOPCO, the expenses in question were directly related
to the transaction which produced the long term
benefit. Accordingly, the expenses had to be
capitalized. See INDOPCO, 503 U.S. 79, 112 S.Ct. 1039,
117 L.Ed.2d 226. We conclude that if the expense is
directly related to the capital transaction (and
therefor, the long term benefit), then it should be
capitalized. * * * See e.g. INDOPCO, 503 U.S. 79, 112
S.Ct. 1039, 117 L.Ed.2d 226 (1992). In this case,
there is only an indirect relation between the salaries
(which originate from the employment relationship) and
the acquisition (which provides the long term benefit *
* *).
Similarly, the instant case is distinguishable
from Acer Realty Co. v. Commissioner22, wherein this
Court held that the salaries paid to two officers for
"unusual, nonrecurrent services" had to be capitalized.
132 F.2d 512, 513 (8th Cir. 1942). The taxpayer was a
corporation whose only business was leasing real estate
to a related corporation. Its officers were paid no
salaries prior to their undertaking a large building
program, at which point the two officers began acting
as general contractors and "performed all the services
necessary to the management of the construction of the
buildings." Acer Realty, 132 F.2d at 514. Because the
salaries were clearly and directly related to the
capital project, this Court determined that most of the
salaries paid were extraordinary or incremental
expenses which had to be capitalized. Acer Realty Co.
v. Commissioner, 132 F.2d 512 (8th Cir. 1942).
22Acer Realty is the only case in our
Circuit, that we are aware of, which denies
the taxpayer a deduction for salary expenses.
The instant case is easily distinguishable from
Acer Realty because Davenport’s officers had always
received salaries, even before the acquisition was a
possibility. There was no increase in their salaries
attributable to the acquisition, and they would have
been paid the salaries whether or not the acquisition
took place. Therefore, we determine that the salary
expenses in this case originated from the employment
relationship between the taxpayer and its officers.
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