Pyramid Corporation wants to acquire one of Pharaoh, Inc.'s active lines of business that Pharaoh has run since its incorporation in 1952. In contemplation of the acquisition, Pharaoh creates TutCo by transferring the desired line of business to TutCo in exchange for all of its stock. This stock is distributed to part of the Pharaoh shareholders in exchange for their shares.
Meanwhile, Pyramid arranges financing to repurchase enough of its own stock to complete the acquisition of 85% of TutCo with voting stock. After the exchange of Pyramid stock for TutCo stock in December of the current year, TutCo is a subsidiary of Pyramid. To orchestrate this acquisition, Pyramid, Pharaoh, and TutCo have incurred substantial legal fees, asset and stock valuation costs, state fees, and financing fees. Determine how the costs paid to facilitate the acquisition of TutCo are treated for Federal income tax purposes. Provide citations to primary tax sources in a research memo for the tax file?