Since the Supreme Court's decision in INDOPCO v. Commissioner, 503 U.S. 79 (1992), whether a particular expense may be deducted or must be capitalized has become a particularly troublesome issue for businesses. The National Taxpayer Advocate has confirmed that capitalization issues are a major cause of controversy for business taxpayers, identifying them as the most litigated issue in his 1998 Report to Congress. The language of the INDOPCO decision has been used by the IRS to support capitalization of numerous expenditures, many of which have long been viewed as clearly deductible. The core inquiry is whether an expenditure produces a "future benefit." Expenditures producing "incidental future benefits" remain deductible, but determining whether there is a future benefit and, if so, whether it is incidental is rarely obvious or easy.

It is imperative that this enormous drain on both Government and taxpayer time and resources be alleviated by developing objective, administrable tests governing the deduction of recurring or routine business expenses or the capitalization of clearly defined categories of expenditures.