Fees to forestall hostile takeover are not deductible
Article Abstract:
The Tax Court found in 'A.E. Staley Manufacturing Co' that fees paid to investment bankers in a futile attempt to block a hostile takeover were not deductible capital expenses as a result of the fact that there was a continuing benefit from the expenditures. In arguing its case, the taxpayer cited 'INDOPCO Inc.,' in which investment bankers' fees incurred by an entity acquired in a friendly takeover were treated as nondeductible. The taxpayer contended that its situation was different from that in the INDOPCO case because the acquirer planned to do away with its business plan and it had fought the acquisition for as long as possible. This supposedly meant that it enjoyed no continuing benefit from the expenditures. However, the court disagreed. It said that the differences were not real because the taxpayer's board of directors agreed to the acquisition in the end and the acquirer anticipated synergy and fulfillment of its strategies.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
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OID is income even if it will not be collected
Article Abstract:
TAM 9538007 provides that OID is taxable income no matter what the financial status of the issuer is. In addition, no loss is to be recognized when debt on which the OID accrued is substituted with stock in a tax-free reorganization. The IRS judged that the individuals, who owned subordinated debentured issued by a corporation, should incorporate the OID in income despite the fact that a taxpayer using accrual method would not have been mandated to accrue interest income on a debt not involving OID in similar situation under Revenue Ruling 80-361. The Service explained that it was unfair to require the inclusion of interest that would not be received in income in anticipation of receipt. Also, the exclusion requested by the concerned parties would lead to a mismatch between income and deductions which the OID provisions are supposed to prevent.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
User Contributions:
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