One specific concern was whether the INDOPCO decision represented a per se rule that takeover-related expenses must always be capitalized. The recent Seventh Circuit decision of A.E. Staley Manufacturing Co. v. Commissioner appears to have answered this question in the negative. In Staley, the Court of Appeals held that the majority of investment banker fees paid in an unsuccessful attempt to defeat a hostile tender offer were deductible as "ordinary and necessary" business expenses. Alternatively, those expenses allocable to the company's unsuccessful efforts to engage in alternate transactions were deductible as "abandoned transactions. ' However, fees paid by Staley to evaluate its stock required capitalization because they facilitated the completed merger.

The Staley decision is unlikely to be the final word on the tax treatment of a target corporation's hostile defense fees. This Note will explore the impact of the Staley decision from both a historical and prospective viewpoint. First, this Note will set out the statutory background and major tests developed by the courts over time to determine the appropriate tax treatment of expenses. In the discussion of the major tests, this Note will review the test employed in INDOPCO and the Supreme Court's reasoning in that decision.' It will then address the Staley opinion and its underlying rationale. This Note will explore the tests employed by the Staley court," critically analyze the court's approach and its reasoning, and assess some of the practical ramifications of the decision. Finally, it will suggest a simpler and perhaps more satisfactory approach than that utilized by the Staley court.