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petitioner became subject to Federal income taxation, effective
January 1, 1985.
During 1983, petitioner incurred expenses in creating the
trade name “Freddie Mac”. Petitioner claims that these expenses
amount to $33,089.2 In 1984, petitioner launched a campaign to
develop a new advertising concept to project a distinct identity
and increase the market’s awareness of petitioner. Petitioner
settled on “Gnomes”, 11 tiny elfin cartoon characters
representing the legend of the “Gnomes of Zurich”, who were
supposedly shrewd financial experts. Petitioner intended the
Gnomes to help it present the image of financial prowess,
resourcefulness, and ingenuity. Petitioner contends that during
1984, it developed and registered 14 separate “Gnome” trademarks
at a total out-of-pocket cost of $215,349.69.3 Whatever costs
petitioner incurred for trademarks and trade names in 1983 and
1984, it expensed those costs currently on its books in the
respective years 1983 and 1984.
Petitioner claims that under section 177(a), it is entitled
to amortization deductions based on trademark and trade name
expenditures that it incurred in 1983 and 1984 when it was exempt
from income tax. Section 177(a) provides an election to
2Respondent disputes petitioner’s substantiation of these
expenses.
3Respondent also disputes petitioner’s substantiation of
this cost.
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