In order to adequately prepare for being bought out, National Starch hired Morgan Stanley to be its investment banker on this transaction.

[5] The courts held that the amount spent towards Morgan Stanley added to the long-term betterment of National Starch.

The key here is that National Starch did not demonstrate that the investment banking, legal, and other costs it incurred in connection with Unilever’s acquisition of its shares are deductible as ordinary and necessary business expenses under §162(a).

In addition to the analysis provided by the two previous courts, the Supreme Court cited the fact that there is a long history of finding that the purpose of changing the corporate structure for the benefit of future operations is not an ordinary and necessary business expense.

Specifically, the taxpayer must capitalize To simplify application, Treasury Regulation 1.263-4(f)(1) enacts a “12-month rule” allowing the taxpayer a current deduction for amounts paid to create rights or benefits that last beyond one year of the taxpayer realizing the right or benefit if that benefit doesn’t last beyond the taxable year following the tax year the initial payment is made.