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Indeed, the legislative history of section 177 indicates
that Congress was trying to help smaller companies qualify for a
tax deduction, for what would otherwise be nondeductible
expenditures, because larger companies were already deducting
these expenditures in the form of salaries paid to their
employees who performed work regarding trademarks and trade
names.6 Congress believed that this disparity in tax treatment
resulted in a “hardship” on small companies that were not able to
deduct these expenses in computing their taxable income. The
references in section 177 to expenditures “paid or incurred
during a taxable year” are consistent with Congress’s objective
to establish parity between the way large and small companies
compute their taxable income. Nothing in the statute or
6The legislative history provides:
Under present law, expenditures paid or incurred
by smaller companies in connection with trademarks and
trade names, such as legal fees, are not deductible but
must be capitalized. Moreover, such expenditures
ordinarily are not amortizable over any period of time
since the useful life of most trademarks and trade
names is indefinite and not ascertainable. However,
certain larger corporations are in a position to hire
their own legal staffs to handle such matters. Because
of difficulties of identification, these large
corporations deduct, in some instances, compensation
paid to their legal staffs for performing the same
functions. Smaller companies, however, cannot afford
to maintain their own legal staffs but must acquire
outside counsel to perform their legal work. By this
amendment your committee intends to eliminate an
existing hardship in the case of small companies. [S.
Rept. 1941, 84th Cong., 2d Sess. (1956), 1956-2 C.B.
1227, 1232.]
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