Client wants to treat the costs as non-facilitative integration costs. Here is the relevant reg., 1.263(a)-5(c)
(6)Integration costs. An amount paid to integrate the business operations of the taxpayer with the business operations of another does not facilitate a transaction described in paragraph (a) of this section, regardless of when the integration activities occur.
A footnote in a BNA Portfolio says that internal restructuring costs may be non-facilitative integration costs within the meaning of 1.263(a)-5(c)(6). Not a real strong statement. And 1.263(a)-5(a) can be read pretty clearly to require capitalization of the types of fees they paid; thus my concern.
(Emphasis added). Two of those "following transactions" are:(a)General rule. A taxpayer must capitalize an amount paid to facilitate (within the meaning of paragraph (b) of this section) each of the following transactions, without regard to whether the transaction is comprised of a single step or a series of steps carried out as part of a single plan and without regard to whether gain or loss is recognized in the transaction:
(4) A restructuring, recapitalization, or reorganization of the capital structure of a business entity (including reorganizations described in section 368 and distributions of stock by the taxpayer as described in section 355).
Here's an article on the area but frankly I did not get much out of it on my question. http://woodllp.com/Publications/Article ... uccess.pdf
(5) A transfer described in section 351 or section 721 (whether the taxpayer is the transferor or transferee).
I think their professional fees are deductible as non-facilitative integration costs because there is no acquisition involved, just a re-arrangement. But it would be nice to find a more specific authority.