IRS attacks advertising deductions
Article Abstract:
The Tax Court ruled in favor of RJR Nabisco in its case against the IRS involving the deduction of its advertising expenditures. Emboldened by the Supreme Court decision on the INDOPCO case, the IRS divided the advertising costs of RJR into two components, namely, deductible advertising execution expenditures and nonductible advertising campaign costs. This meant that part of the costs were deductible and the remainder were capitalizable. The IRS argued that some expenditures result in a short-term benefit and are deductible as advertising expenses. However, the Tax Court ruled that the INDOPCO decision has no impact on the taxation of advertising costs as business expenses, which can be deductible under the Internal Revenue Code's Sec 162. It did not recognize the distinction made by the IRS. Nevertheless, the court stated that expenditures for some tangible assets still require capitalization.
Publication Name: Management Accounting (USA)
Subject: Business, general
ISSN: 0025-1690
Year: 1998
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Environmental cleanup costs and deductions
Article Abstract:
One of the major concerns of companies regarding federal mandates on environmental cleanup costs is the determination of deductibility. This can be a confusing area because such costs only emerged in the early 1990s. As such, IRS guidelines are still new and relevant case law is sparse. The IRC's general rules pertaining to deductibility say that, to be deductible, costs must not boost the value of the asset by making permanent improvements or betterments, by extending the lifespan of the asset, or by creating a new use for it. In addition, costs should be secondary and should only restore the asset to its ordinary working condition. The IRS does not allow the penalties and fines incurred in some environmental cleanup projects to be deductible.
Publication Name: Management Accounting (USA)
Subject: Business, general
ISSN: 0025-1690
Year: 1995
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Court of Appeals allows current deduction of takeover defense expenses
Article Abstract:
The Court of Appeals for the Seventh Circuit permitted A.E. Staley Manufacturing Co to make a current deduction of the expenses incurred by its predecessor company SCI in defending itself against a hostile corporate takeover bid by Tate & Lyle. In explaining its decision, the court asserted that such a defense generates ordinary, necessary and immediately deductible business costs and mentioned previous cases supporting this principle, including those involving Heininger (1943) and Tellier (1966). The court also clarified that this principle is not undermined by the decision on the INDOPCO case, which indicated that any expenditure that yields a future benefit lasting longer than the current tax year should be capitalized.
Publication Name: Management Accounting (USA)
Subject: Business, general
ISSN: 0025-1690
Year: 1998
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