Effect of the Supreme Court's decision in INDOPCO.

On April 11, 1992, Tax Executives Institute submitted the following comments to Terrill A. Hyde, Tax Legislative Counsel for the U.S. Department of the Treasury, concerning the scope of the Supreme Court's decision in Indopco v. Commissioner. An article on the decision appeared in the March-April issue of The Tax Executive.

Following up on one of the subjects discussed during TEI's recent liaison meeting with Assistant Secretary Goldberg, you, and other representatives of the Office of Tax Policy, I want to underscore the Institute's belief that the Treasury Department and the Internal Revenue Service should take steps to clarify the scope of the Supreme Court's recent decision in Indopco.

During the meeting, you mentioned that the Treasury had not heard from many taxpayers about the Indopco decision. Let me assure you, I have heard from many TEI members. Although some of them may have been willing to concede the nondeductibility of the precise expenditures at issue in the case even before the Court handed down its unanimous decision, every one of them is discomfited by the potential breadth of the Court's opinion. Clearly, taxpayers and the government alike had hoped that the decision would bring certainty to the capitalization-versus-expensing issue albeit on different sides of the issue). TEI is concerned, however, that the result will not be certainty but confusion. Thus, like the high court's decisions in Cottage Savings and Arkansas Best, the decision in Indopco may well raise more questions than it answers. Indeed, the scope of the Court's holding is so ambiguous (and the burden it places on taxpayers so potentially high), that - absent some guidance from Treasury and the IRS National Office - Indopco could well spawn dispute after dispute for years to come.

For example, although the case itself deals with the treatment of expenditures incurred in connection with a friendly takeover, we are aware of revenue agents in many districts who stand poised to invoke the Court's broad language to disallow deductions for a whole range of historically deductible expenses. TEI believes that the Treasury Department and IRS National Office should act to bring a modicum of certainty to the area by providing clear guidance to field personnel (in the Examination Division and Counsel) on what the Indopco case does not stand for. Obviously, the decision's application to certain expenditures (e.g., those incurred in connection with a hostile takeover)...