ries and insurance fees) need not be capitalized unless they directly relate to the acquisition, creation, or enhancement of a specific capital asset or unless they directly produce significant benefits to the taxpayer that accrue to the taxpayer in future years.

Applying this statement of the INDOPCO capitalization test to the fees involved in this case, it becomes clear that the fees should be currently deductible. Relevant aspects of the fees are described on pages 221-225 of the majority's opinion. I would emphasize that the fees

(1) Were paid to the FDIC, the Federal governmental agency which routinely supervises Metrobank in the normal course of its business, not to Community, the transferor of the deposit liabilities and not to third parties such as lawyers and financial advisers for a specific service necessary to consummate the conversion transaction;

(2) were similar to other insurance fees that were routinely paid by Metrobank to the Federal Government in the normal course of Metrobank's banking business;

(3) both in amount paid per year ($71,518) and in the total cumulative amount paid over 5 years ($352,904), were generally less than Metrobank's total regular insurance premiums paid into the FDIC funds in a single year (in 1993 and 1994, $465,046 and $463,583 respectively, and in 1995, $322,245);

(4) did not provide Metrobank with any additional insurance coverage with regard to its deposit liabilities (including those transferred from Community) and were not paid in lieu of the regular future annual insurance premiums due;

(5) once paid by Metrobank into the insurance funds, were not refundable to Metrobank and were available for use by the FDIC to assist any participant in the funds;

(6) were triggered by and were coincidental with the conversion transaction, but had the origin and purpose, and were assessed and paid not because thereof but because of the broader purpose to shore up the financial strength of the FDIC's insurance funds, the financial strength of which was of ongoing and necessary concern not just to the FDIC but to the entire financial community (and which concern reflected the same purpose for which Metrobank and others paid the annual premiums into the FDIC insurance funds). In other words, the FDIC, Metrobank, Community, and all other

contributors into the insurance funds had the same purpose for paying the annual premiums and for paying the exit and entrance fees (i.e., the maintenance of the financial integrity of the Federal Government's depository liability insurance programs, essential not just to the government, but also to every participant in the financial community-the Government, the banks and savings and loans, and even you and I, the depositors who hope and trust that we will always be able to get our money back).

For the reasons stated, I respectfully concur.

CHIECHI, J., concurring: Respondent chose to ask the Court to decide the issue of whether the exit fee and the entrance fee should be capitalized solely on the basis of respondent's theory that those fees generated certain significant future benefits for Metrobank. The majority states that it will "decide this case as framed by respondent". Majority op. p. 217. However, the majority rejects respondent's reliance on Darlington-Hartsville Coca-Cola Bottling Co. V. United States, 273 F. Supp. 229 (D.S.C. 1967), affd. 393 F.2d 494 (4th Cir. 1968), and Rodeway Inns of Am. v. Commissioner, 63 T.C. 414 (1974),1 because: "The taxpayer in each of those cases purchased a capital asset incident to the payment of the expenses in dispute there." Majority op. p. 225 note 10. I am concerned that such language by the majority could be read to suggest its view on what the result in this case would have been if respondent had argued that the exit fee and the entrance fee should be capitalized because such fees constitute amounts expended to acquire an asset with a life extending substantially beyond the taxable year of acquisition. See, e.g., Commissioner v. Idaho Power Co., 418 U.S. 1, 13 (1974); Woodward v. Commissioner, 397 U.S. 572, 575– 576 (1970); Ellis Banking Corp. v. Commissioner, 688 F.2d 1376, 1379 (11th Cir. 1982), affg. in part and remanding in part T.C. Memo. 1981-123; American Stores Co. & Subs. v. Commissioner, 114 T.C. 458, 468–470 (2000). If the majority intended to express no opinion on what the result in this

1 On brief, respondent described those two cases as cases in which "the courts held that the taxpayers could not deduct expenses that were part of a plan to produce a positive business benefit for future years."

case would have been if respondent had advanced such an argument, the majority should not have used language that, in my view, could be construed to suggest such an opinion.2 I have considered and resolved the issue of whether the exit fee and the entrance fee should be capitalized solely on the basis of respondent's theory that those fees produced certain significant long-term benefits for Metrobank. On the record presented, I, like the majority, reject respondent's theory that the benefits which respondent asserts the fees in question produced are significant long-term benefits requiring capitalization of those fees.3 However, I disagree with the majority that the exit fee is a "final premium for insurance that it had already received", majority op. p. 223, and that the entrance fee is a "premium * * * paid for the current year's insurance", majority op. p. 223. In my view, the record and 12 U.S.C. secs. 1815 and 1817 (1994) regarding the nature, use, and purpose of those nonrefundable fees, which were paid in five annual installments, belie the majority's analogy of the exit fee and the entrance fee to premiums paid for insurance coverage provided.

THORNTON, J., agrees with this concurring opinion.

RUWE, J., dissenting: The majority refuses to consider whether the exit and entrance fees should be capitalized as costs incurred in connection with the acquisition of a capital asset because the majority believes that respondent failed to include this theory in his determination. The majority reads the notice of deficiency too narrowly. Respondent's determination, as contained in the notice of deficiency, states:

It has been determined that your deductions for the entrance and exit fee paid to the Federal Deposit Insurance Corporation for the transfer of your insured deposits from one depository insurance to another depository insurance fund is a non-deductible capital expenditure that is not subject to depreciation or amortization.

2 Similarly, if the majority decided this case "as framed by respondent", majority op. p. 217, the majority should not have concluded that, although respondent does not argue that the facts presented in this case are similar to the facts in Commissioner v. Lincoln Sav. & Loan Association, 403 U.S. 345 (1971), see majority op. p. 226, the facts in the instant case are not similar to those facts, see id.

3 Unlike the majority, I have not considered whether there are any benefits other than those alleged by respondent that are significant future benefits generated for Metrobank by the fees in question. See majority op. p. 222.

The language contained in the notice of deficiency is broad and disallows deduction of the fees simply because respondent determined that the fees were capital expenditures.

The broad language contained in the notice of deficiency should not have misled petitioner into believing that it did not have to establish that the fees were not costs incurred in connection with the acquisition of a capital asset. Petitioner's primary argument on brief was that the fees were for deposit insurance coverage for the years in issue. Petitioner's alternative argument was that if the fees must be capitalized, then they are to be associated with the acquired deposits and amortized over the useful life of the core deposits. Thus, petitioner recognized that the fees might be viewed as being incurred in connection with the acquisition of capital assets. There is nothing to indicate that there were any additional facts bearing on this case that could have been introduced. This case was submitted on the stipulated facts, and there is nothing to indicate that petitioner was not aware of its burden of proving entitlement to the claimed deductions, including the need to establish that the fees were not incurred in connection with the acquisition of assets.

This is not a case where respondent issued a narrowly drawn notice of deficiency and subsequently advanced new grounds not directly or implicitly within the ambit of the determination. See Pagel, Inc. v. Commissioner, 91 T.C. 200, 212 (1988), affd. 905 F.2d 1190 (8th Cir. 1990); Sorin v. Commissioner, 29 T.C. 959, 969 (1958), affd. per curiam 271 F.2d 741 (2d Cir. 1959); Weaver v. Commissioner, 25 T.C. 1067, 1085 (1956). While the language contained in the notice of deficiency does not specifically state that the fees were costs incurred in connection with the acquisition of a capital asset, that is a reason for capitalization that is within the scope of the determination. The failure to enumerate every theory that could support a determination should not prevent us from deciding this case on what we consider to be the correct application of the law to the facts presented. See Rendina v. Commissioner, T.C. Memo. 1996-392; Barnette v. Commissioner, T.C. Memo. 1992-595, affd. without published opinion sub nom. Allied Management Corp. v. Commissioner, 41 F.3d 667 (11th Cir. 1994). Indeed, this Court has recognized on several occasions that we have the inherent authority to decide a case on grounds not raised in the notice of

deficiency and will do so if petitioner is not surprised or prejudiced by the ground. See Seligman v. Commissioner, 84 T.C. 191, 198 (1985), affd. 796 F.2d 116 (5th Cir. 1986); Estate of Horvath v. Commissioner, 59 T.C. 551, 555 (1973); Barr v. Commissioner, T.C. Memo. 1989-69 n.24; Gmelin v. Commissioner, T.C. Memo. 1988-338 n.18, affd. without published opinion 891 F.2d 280 (3d Cir. 1989).1

Petitioner bears "the burden of clearly showing the right to the claimed deduction". INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). In order for us to decide that petitioner is entitled to a current business expense deduction under section 162(a), petitioner must establish that the fees: (1) Did not create or enhance a separate or distinct asset;2 (2) did not create significant future benefits;3 and (3) were not incurred in connection with the acquisition of a capital asset.4

Capitalization is generally required for expenditures that are incurred by a taxpayer "in connection with" the acquisition of an asset. Such expenditures include more than just the stated purchase price of the asset. For example, wages paid in connection with the acquisition of a capital asset or legal fees paid to consummate an acquisition must be capitalized. See Commissioner v. Idaho Power Co., 418 U.S. 1 (1974); American Stores Co. & Subs. v. Commissioner, 114 T.C. 458 (2000).

In Commissioner v. Idaho Power Co., supra at 13, the Supreme Court observed:

Of course, reasonable wages paid in the carrying on of a trade or business qualify as a deduction from gross income. * * * But when wages are paid in connection with the construction or acquisition of a capital asset, they must be capitalized and are then entitled to be amortized over the life of the capital asset so acquired. * * *

1 Where the record contains sufficient facts to permit us to decide a case on an issue that would dispose of it, we shall do so, regardless of whether the parties have pleaded the issue. See Rendina v. Commissioner, T.C. Memo. 1996-392; Barnette v. Commissioner, T.C. Memo. 1992-595, affd. without published opinion sub nom. Allied Management Corp. v. Commissioner, 41 F.3d 667 (11th Cir. 1994); see also Park Place, Inc. v. Commissioner, 57 T.C. 767, 768-769 (1972).

2 See Commissioner v. Lincoln Sav. & Loan Association, 403 U.S. 345, 354 (1971).

3 See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 87-88 (1992).

4 See Commissioner v. Idaho Power Co., 418 U.S. 1, 13 (1974); American Stores Co. & Subs. v. Commissioner, 114 T.C. 458, 469 (2000).