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ANPRM does not provide authority for present application of a 12-
month rule, it is likely that Treasury and the Service will
ultimately adopt such a rule in regulations”. The memorandum
concludes: “Given this likelihood, and considering the opinion
in U.S. Freightways Corp., we must consider whether it is an
efficient utilization of our resources to propose capitalization
of those expenditures, particularly in light of the relatively
short tax deferral period (one taxable year) that results from
the application of the 12-month rule.” Accordingly, the
memorandum recommends that, with respect to “examinations
initiated prior to the release of the regulations”, the issue of
whether to capitalize “certain short-term expenditures * * *
should be pursued”, but only where the examination “has [already]
resulted in the preparation of a Form 5701, Notice of Proposed
Adjustment (LMSB), or Form 4549, Revenue Agents Report (SB/SE).”
Otherwise, that issue “should not be pursued, in the absence of
contrary guidance.”
Discussion
I. Section 7430
A. General Scope
Section 7430 provides that a taxpayer may recover reasonable
costs, including attorney’s fees, incurred in connection with any
tax proceeding (administrative or judicial) against the United
States if the taxpayer is the prevailing party in the proceeding.
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