The Chief Counsel Advice memo observes that even though the planned stock transaction was terminated, the taxpayer did not abandon the stock offering as part of its plan of reorganization, but simply postponed the stock offering.
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While costs incurred in preparation for a public offering of stock must be considered costs incurred to sell the offered stock and generally must be capitalized, if the plan to publicly sell such stock is abandoned, such costs may be deductible in the year such losses were sustained.
The taxpayer maintained that it was entitled to a deduction for costs related to a terminated stock offering because none of the expenses incurred and deducted in the failed offering would have any carryover benefit.
However, according to the IRS Chief Counsel memo, documents provided by the taxpayer indicated that the taxpayer did not abandon its public offering. Rather, the taxpayer’s new plan was apparently a continuation of a prior plan and further showed the taxpayer intended to postpone the offering, with a full intention of completing the stock offering at some later date. Thus, all the costs incurred in pursuing the public offering and conversion, including both plans, must be capitalized, unless the entire transaction is abandoned, the memo concluded.
*Chief Counsel Advice documents are legal advice, signed by executives in the National Office of the IRS Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The documents are issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. However, they are not to be used or cited as precedent.