Monday, April 29, 2013

INDOPCO, Inc. v. Commissioner case brief

INDOPCO, Inc. v. Commissioner case brief
503 U.S. 79,112 S. Ct. 1039, 117 L. Ed. 2d 226, 1992 U.S.

CASE SYNOPSIS: Petitioner corporation sought review from a judgment of the United States Court of Appeals for the Third Circuit, which found in favor of respondent Internal Revenue Service that professional expenses incurred by petitioner in the course of its friendly takeover by another corporation were capital expenditures, and not income tax deductible ordinary and necessary business expenses under 26 U.S.C.S. § 162(a).

FACTS: In the course of its friendly takeover by another corporation, petitioner incurred expenses of over $ 2.75 million, representing fees paid to investment bankers and attorneys, as well as other miscellaneous expenses. Petitioner claimed an income tax deduction for most of this amount, but respondent Internal Revenue Service disallowed the deduction.

ANALYSIS:
This decision was affirmed by the tax court, the court of appeals, and the Supreme Court, which held that the expenses petitioner had incurred were capital expenditures and were thus non-deductible pursuant to 26 U.S.C.S. § 263, and were not deductible ordinary and necessary current business expenses under 26 U.S.C.S. § 162(a). The court rejected petitioner's argument that an expenditure had to serve to create or enhance a separate and distinct asset in order to be a capital expenditure, and also held that consideration of the future benefit of an expenditure was undeniably important. The court then noted the long-term benefits of petitioner's takeover and held that the expenses petitioner incurred for the purpose of changing the corporate structure for the benefit of future operations were not ordinary and necessary business expenses.

CONCLUSION: The court affirmed the judgment.
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