INDOPCO, Inc. v. Commissioner

Holding

Expenses incurred in a friendly takeover that produce significant long-term benefits must generally be capitalized rather than deducted as ordinary and necessary expenses.

Facts

National Starch (later INDOPCO) incurred investment-banker and legal fees in a friendly acquisition by Unilever. The company deducted the fees as ordinary expenses.

Reasoning

Justice Blackmun held that a separate and distinct asset was not required for capitalization; the test was whether expenses produced significant long-term benefits. The decision triggered uncertainty about deductibility of business expansion costs, ultimately prompting Treasury to issue regulations creating safe harbors.