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the Third Circuit held that the costs reflected “recurring,
routine day-to-day business” costs that may be currently deducted
as the costs were not incurred for significant future benefits.
PNC Bancorp, Inc. v. Commissioner, 212 F.3d at 834. While the
benefits from the consumer loans would continue for years, the
Court of Appeals for the Third Circuit resolved not to expand the
type of costs that must be capitalized “so as to drastically
limit what might be considered as 'ordinary and necessary'
expenses.” Id. at 830.
A.E. Staley Manufacturing Co. & Subs. v. Commissioner,
119 F.3d 482 (7th Cir. 1997), involved fees paid to investment
bankers to explore alternative transactions in connection with an
unsuccessful defense of a hostile tender offer. In reversing the
Tax Court’s holding that the fees had to be capitalized, the
Court of Appeals for the Seventh Circuit relied on the “well-worn
notion” that costs incurred in defending a business are currently
deductible. Id. at 487.
As noted in A.E. Staley Manufacturing by the Court of
Appeals for the Seventh Circuit, the test to apply under INDOPCO
is difficult to articulate and to apply. See id. The test is
very factual and practical. In an effort to partially reconcile
the various statements of the INDOPCO test and, in particular, in
light of the recent Courts of Appeals’ opinions reversing the Tax
Court’s application of the INDOPCO test, I offer the following:
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