About two decades ago, RJR Nabisco incurred $2 million dollars in cost for package design the physical construction of the package and graphic design. Nabisco wanted to deduct the entire $2 million in the year it was spent; the Internal Revenue Service (IRS) insisted that the $2 million be treated as a capital expenditure and depreciate over time. Eventually, the tax court sided with Nabisco.

a. Explain clearly why Nabisco would prefer to have the $2 million treated as a current expense rather than a capital expenditure?

b. Do you agree with the ruling of the tax court? Briefly explain your answer.