TEI files friend-of-court brief on deductibility standard, comments on QSLOB and section 9100 regulations.

• Position: The Executive Institute, qualified separate line of business

As Tax Executives Institute's 1990-1991 leadership wound down its year, the Institute filed a brief amicus curiae with the U.S. Supreme Court in a case involving the deductibility of takeover expenses. TEI also commented on the IRS's proposed employee benefit regulations under section 414(r) (relating to qualified separate lines of business) and the proposed rules governing the making of untimely elections under section 9100. In addition, the Institute submitted comments to the House Committee on Ways and Means concerning tax measures affecting the ability of U.S. companies to compete effectively abroad, and geared up to file comments on proposed tax simplification legislation.

The Institute's continuing efforts with respect to Form 5471 and the time period for filing protests are the subjects of separate stories elsewhere in this issue. Also reprinted in this issue, beginning on page 276, are the minutes of TEI's February 14 liaison meeting with the Internal Revenue Service.

Amicus Brief on Deductibility

of Takeover Expenses

TEI's friend-of-the-court brief was filed with the Supreme Court of the United States in a case involving the deductibility of investment banking, legal, and other fees incurred in connection with a takeover. The case, Indopco, Inc. v. Commissioner, relates to expenses incurred by Indopco (nee National Starch & Chemical Corporation in connection with the acquisition of its stock by the Unilever group. The resolution of this issue turns on the interpretation of the Court's 1971 decision in Commissioner v. Lincoln Savings & Loan Association. The amicus brief, which was filed with the Court on June 27, is reprinted in this issue, beginning on page 269.

In its brief, the Institute stated that the Lincoln Savings decision brought much needed certainty to the deductibilty of ordinary and necessary business expenses under section 162(a). In crafting an objective standard, the Court stated that "many expenses concededly deductible have prospective effect beyond the taxable year." It then forthrightly held that what was "important and controlling" was that the payment "serves to create or enhance . . . what is essentially a separate and distinct additional asset . . . ." Thus, although the Court in Lincoln Savings held that the particular expenditure was capital in nature, "it unequivocally rejected the notion that a cost must always be capitalized if the benefit associated with it extends beyond the taxable year," TEI stated.

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