Again, rather than invite ambiguity or permit creative interpretations, the government chose to eliminate the concept altogether and to replace it with specific situations requiring capitalization.
Capitalization is not required where the contract provides only a hope or expectation of patronage, nor where the agreement can be cancelled at-will within the first year.
Significantly, capitalization is only required where the taxpayer obtains some form of assurance of a future income stream or of a concrete, commercial benefit.
This well-intentioned warning to creative taxpayers ideally will not encourage revenue agents to take an over-expansive view of the eight categories, thereby simply shifting the capitalization debate to a discussion of the boundaries of these categories.
263(a)-4 does not follow the style of the uniform capitalization regulations.
Apart from the 12-month rule and the de minimis rule for the costs of creating certain contracts, the final regulations' primary focus in identifying the costs subject to capitalization is upon transaction costs.
Although this date is earlier (and thus requires the capitalization of more transaction costs) than that applicable to "covered transactions" under Treas.
The IRS, as noted in TAM 8945003, would also require capitalization of the white knight costs.
In the case of a friendly takeover, however, many of the target's costs will be incident to the shift in ownership and capitalization is dictated by the Tax Court's long-term benefit test.
The Third Circuit Court of Appeals, in its review of the National Starch decision, must address the efficacy of the long-term benefit test in resolving the capitalization issue with respect to NSC's takeover-related expenses.
6) The Tax Court also acknowledged that expenses incident to other types of changes in corporate structure or capitalization generally constitute capital expenditures.
If the dominant aspect was a reorganization, capitalization of expenses was required.