A new revenue procedure creates a safe harbor for companies that have incurred “success fees.”

Success-based fees are amounts that are contingent on the successful closing of a transaction (most often, investment banker fees). They are presumed to facilitate the transaction and, typically, must be capitalized.

Revenue Procedure 2011-29 now allows companies to allocate 70 percent of the success-based fees paid in business acquisitions or reorganizations to activities that do not facilitate the transaction and can be deducted immediately. The other 30 percent of the fees must be capitalized, often permanently.

Without this election, and for the deduction to be taken, the taxpayer must prove that success-based fees did not facilitate the transaction. Companies taking advantage of the new safe harbor election can avoid much of the documentation requirement. The election is available for success-based fees paid or incurred in tax years ending on or after April 8, 2011, so it will apply to calendar year 2011 returns.

Other fees, such as attorney or accountant fees, are typically not success-based. These costs must be analyzed under existing rules.