Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 67-1

1967-1 C.B. 28

Full Text

Rev. Rul. 67-1 /1/

The Internal Revenue Service will follow the decision of the U.S. District Court for Connecticut in the case of Locke Manufacturing Companies v. United States , 237 F.Supp. 80 (1964), with respect to the deductibility of certain corporate proxy fight expenditures involving solicitation and shareholder relations expenses. The decision in this case held that such expenditures were primarily concerned with a question of corporate policy and were ordinary and necessary expenses deductible by the corporation as business expenses under section 162 of the Internal Revenue Code of 1954.

However, the Service will continue to scrutinize expenditures made by corporations in proxy contests to determine whether such expenditures are made primarily for the benefit of the interests of individuals rather than in connection with questions of corporate policy. Thus, for example, if it is determined that such expenditures are in the nature of preferential dividends to stockholders or excessive compensation of officer-stockholders, deductions claimed by corporations for such expenditures will be disallowed.

The decision in the Locke case is analogous to the position stated in Revenue Ruling 64-236, C.B. 1964-2, 64, which relates to the deductibility of proxy fight expenditures by an individual stockholder under section 212 of the Code, if such expenditures are proximately related to either the production or collection of income or to the management, conservation, or maintenance of property held for the production of income.

/1/ Based on Technical Information Release 871, dated Dec. 16, 1966; see also Technical Information Release 885, dated Feb. 15, 1967.