New ESOP-need help

[Guest Snapoleon]

I have not been able to find an answer to the following: Two corporations merged. Immediately thereafter, the surviving corporation created a leveraged ESOP. The merger and ESOP legal, accounting and other start up costs totalled about $250,000. Of these costs, what should be capitalized and what should be expensed? I am getting conflicting answers. And for those that are capitalized, over what period of amortization are they expensed? Please help.

[BeckyMiller]

I don't see that you are going to get clear advice on this. Several years ago, the IRS succeeded in a case called INDOPCO. (112 SCt 1039, 1992) Since then, there has been a ton of discussion over what items that have long standing value can be deducted currently, amortized, etc.

The general rule is that costs incurred to establish a qualified retirement plan are currently deductible.

Costs incurred to establish debt are generally amortized over the period of the loan.

Costs related to capital structures, etc. are capitalized. Some can be amoritized.

See IRC Section 263 for a general discussion of capital expenditures. Section 197 regarding amortization of goodwill.

Section 195 regarding amortization of start-up costs. And Rev. Rul. 99-23 may be on point to your question.