Capital expenditures - Uncle Fed's Tax*Board

Capital expenditures
temporary authority are depreciable over the
remaining life of such authority. Costs incurred
beginning with the taxable year of the Board’s
decision to determine permanent authorization, as
well as any unrecovered costs of “temporary” certificates
converted to “permanent” certificates,
are not depreciable. In cases of “mixed awards,”
costs reasonably allocated to authority denied are
deductible losses; costs allocated to certificates
awarded on a temporary basis are depreciable over
the term of the award; and costs allocated to permanent
certificates are not depreciable. Rev. Rul.
56-600 amplified. §§1.165-1, 1.167(a)-3,
1.263(a)-1. (Secs. 165, 167, 263; ’86 Code.)
Rev. Rul. 67-113, 1967-1 C.B. 55.
66.3 Airlines route; development costs.
Expenditures incurred in connection with the
acquisition and development of air routes are capital
expenditures. No part of such expenditures
may be charged off due to suspension of operations,
but must be deferred until the abandonment
of the route. Amplified by Rev. Rul. 67–113. (Sec.
263, ’86 Code.)
Rev. Rul. 56-600, 1956-2 C.B. 171.
66.4 Annuity payments exchanged for dower
interest in farm. Annuity payments payable out
of income from farm property distributed by a probate
court to a decedent’s son in exchange for the
release of a widow’s dower rights and interest in
the property are nondeductible capital expenditures.
§§1.162-1, 1.263(a)-1. (Secs. 162, 263; ’86
Code.)
Rev. Rul. 72-81, 1972-1 C.B. 98.
66.5 Appraisal fees on mortgage loans; life
insurance company. Appraisal fees incurred by a
life insurance company in connection with the
acquisition of mortgage loans are capital expenditures
to be amortized over the life of the debt. The
fees are not current expenses related to investment
income to be deducted in the year incurred.
§1.804-4. (Sec. 804, ’86 Code.)
Rev. Rul. 67-369, 1967-2 C.B. 235.
66.6 Attorney fees. Attorneys obtained a judgment
against the decedent for services they performed
regarding a stock transaction, the proceeds
from which were ordered paid into the court and
subsequently disbursed to the attorneys and estate.
Held, a portion of the judgment amount was a capital
expenditure. (Sec. 113(b)(1), ’39 Code; Sec.
1016, ’86 Code.)
A. P. Steckel, 26 T.C. 600, Nonacq., 1957-1
C.B. 6.
66.7 Bankrupt corporations; trustee’s expenditures.
Costs and expenses incurred by a corporation’s
trustee in bankruptcy in connection with
the institution and administration of reorganization
proceedings under Chapter X of the Bankruptcy
Act are capital expenditures of the corporation;
however, such expenditures in a liquidation
under Chapters I through VII of the Act, except for
expenses connected with sales of assets that must
be offset against proceeds, are deductible by the
corporation under section 162. In either the reorganization
or liquidation bankruptcy, the expenses
of the trustee in operating the bankrupt’s business
are deductible under section 162. I.T. 2004 superseded.
§31.162–1, 1.263(a)–1. (Secs. 162, 263;
’86 Code.)
Rev. Rul. 77-204, 1977-1 C.B. 40.
66.8 Baseball player contracts; acquisition
costs; change of accounting method. Conditions
are set forth under which a major league baseball
club will be permitted to change its method of
accounting for acquisition costs of uniform baseball
players’ contracts to one consistent with Rev.
Rul. 67–379 for taxable years beginning after
October 31, 1967. The adjusted basis of the contract
as well as its useful life is subject to verification
and acceptance upon audit. §§1.446–1,
1.481-1, 1.1031(a)-1. (Secs. 446, 481, 1031; ’86
Code.)
Rev. Rul. 70-318, 1970-1 C.B. 113.
66.9 Bonuses and commissions for securing
customers. Bonuses and commissions paid to
salesmen and dealers and plumbing contractors by
a gas distributor for securing five-year leases for
hot water heaters are capital expenditures amortizable
over the term of the lease. Rev. Rev. 68–651
distinguished. §§1.162-1, 1.263(a)-2. (Secs. 162,
263; ’86 Code.)
Rev. Rul. 69-331, 1969-1 C.B. 87.
66.10 Bottom hole contribution. A “bottom
hole” contribution is includable in the recipient’s
gross income and must be treated as a capital
expenditure by the payor. §§1.61–1, 1.263(a)-1,
1.612-4. (Secs. 61, 263, 612; ’86 Code.)
Rev. Rul. 80-153, 1980-1 C.B. 10.
66.11 Brokerage fees; long-term lease. The
entire amount of commission paid to a broker for
obtaining a long-term property lease is a capital
expenditure that must be amortized over the life of
the lease beginning with the first day of such lease
regardless of the method of accounting used by the
taxpayer. I.T. 2263 superseded. §§1.162-1,
1.167-1, 1.263(a)-1. (Secs. 162, 167, 263; ’86
Code.)
Rev. Rul. 70-408, 1970-2 C.B. 68.
66.12 Brokerage fees; stock reacquisition.
Brokerage fees paid by a domestic corporation in
acquiring its own stock for the purpose of bolding
it as treasury stock or retirement, are part of the
purchase price and are not business expenses
deductible under section 162, O.D. 852 superseded.
§§1.162–1, 1.263(a)–2. (Secs. 162, 263;
’86 Code.)
Rev. Rev. 69-561, 1969-2 C.B. 25.
66.13 Camp site. Preliminary expenses
incurred in search of a site for a boys’ camp and
expenses attributable to the promotion of the business
to be established are not deductible as either
business expenses or nonbusiness expenses. The
expenses incurred in the acquisition of a lease on
the selected site are capital in nature and are amortizable
over the life of the lease. Rev. Rul. 55-442
superseded. §§1.162-1, 1.178-1, 1.212-1,
1.263(a)-1. (Secs. 162, 178, 212, 263; ’86 Code.)
Rev. Rul. 73-421, 1973-2 C.B. 33.
66.14 Carrying charges; intercompany loan
interest; election. The listing of interest under the
heading “deferred intercompany interest” on a
schedule of a subsidiary that was attached to the
consolidated return of an affiliated group of corporations
is a proper election to capitalize interest on
an intercompany loan. Rev. Rul. 70-539 distinguished.
§§1.266-1, 1.1502-13. (Secs. 266, 1502;
’86 Code.)
Rev. Rul. 76-325, 1976-2 C.B. 88.
66.15 Carrying charges, etc.; election
improper. A manufacturing corporation that for
ten years capitalized taxes and carrying charges
incurred on machinery used in its business without
having properly elected to do so adopted a method
of accounting with respect to such expenses and is
precluded from amending its returns for open
years and deducting the expenses for such years.
Rev. Rul. 70–539 distinguished. Clarified by Rev.
Rul. 77-236. §§1.266-1, 1.446-1. (Secs. 266,
446; ’86 Code.)
Rev. Rul. 75-56, 1975-1 C.B. 98.
66.16 Carrying charges, etc.; election
improper. A change in accounting method relating
to the capitalization of carrying charges and
taxes under section 266 requires computation of
the necessary adjustment pursuant to section 481.
Rev. Rul. 75-56 clarified. §1.266-1. (Sec. 266.
’86 Code.)
Rev. Rul. 77-236, 1977-2 C.B. 84.
66.17 Carrying charges, etc.; election to
capitalize. A corporation, engaged in developing
real estate, that failed to file a statement with its
original returns identifying the carrying charges,
interest and taxes it had elected to capitalize, did
not make a valid and binding election under section
266 and is not precluded from deducting such
expenses as current operating expenses in
amended returns. Distinguished by Rev. Ruls.
75-56 and 76-325. §1.266-1. (Sec. 266, ’86
Code.)
Rev. Rul. 70-539, 1970-2 C.B. 70.
66.18 Car-top sign; rural mail carrier. The
cost incurred by a rural mail carrier for a U.S. mail
identification car-top sign is a capital expenditure
recoverable through depreciation. Since the sign is
attached to the vehicle used in delivering mail, the
depreciation deduction is allowable as a transportation
expense in arriving at adjusted gross
income. §§1.62–1, 1.162–1, 1.263(a)–1. (Secs.
62, 162, 263; ’86 Code.)
Rev. Rev. 67-444, 1967-2 C.B. 80.
66.19 Cattle breeding service agreement. A
cash method taxpayer entered into a cattle breeding
service agreement (termed a lease) under
which the taxpayer leases a cow from a herd
owner. The agreement provides that a calf will be
produced within 1 year of mating, will remain with
its mother for 1 year, and will be healthy and sound
for breeding at the time of weaning. The agreement
terminates when the calf is weaned, at which
time the taxpayer may take possession of the calf,
sell it, or place it in a herd management program.
The cost attributable to the service agreement,
including a breeding fee and the initial costs of caring
for a cow and calf until the calf is weaned, are
capital expenditures under section 263.
§§1.162-12, 1.263(a)-1. (Secs. 162, 263; ’86
Code.)
Rev. Rul. 79-176, 1979-1 C.B. 123.
66.20 Christmas trees; planting and cultivation.
The cost of silviculture practices, such as
weeding, cleaning, and noncommercial thinning,
are deductible business expenses in connection
with the cultivation of Christmas trees as a trade or
business. However, expenditures for planting,
basal pruning, stump culture, pruning, related land
improvements, and equipment or other depreciable
assets must recapitalized. Modified to provide
that expenditures for shearing and basal pruning
are deductible business expenses for taxable years
ending after May 24, 1971. §§1.162-1,
1.263(a)–1, 1.611-3, 301.7805–1. (Secs. 162,
263, 611, 7805; ’86 Code.)
Rev. Rul. 66–18, 1966-1 C.B. 59; Rev. Rul.
71-228, 1971–1 C.B. 53; Daniel D. Kirrley, 51
T.C. 1000, Acq., 1971-2 C.B. 3.
66.21 Citrus and almond trees; maintenance
before permanent planting. Expenses incurred
in maintaining citrus and almond trees at any time
before the close of the four-year period beginning
with the year in which the trees are planted in their
permanent moves must be capitalized. Rev. Rul.
80-25 clarified. §1.278-1. (Sec. 278, ’86 Code.)
Rev. Rul. 83-128, 1983-2 C.B. 57.
66.22 Citrus grove; irrigation system. The
taxpayer placed in service an irrigation system
used in the development of a citrus grove.
Depreciation on the irrigation system prior to the
time the grove reaches the income producing stage
must be capitalized and recovered over the useful
life of the grove, beginning in the year the grove
reaches an income producing stage. Rev. Rul.
80-25 modified. §§1.167(a)-1, 1.263(a)-2,
1.278-1, 301.7805.1. (Secs. 167, 263, 278, 7805;
’86 Code.)
Rev. Rul. 83-67, 1983-1 C.B. 74.
66.23 Citrus groves; trees and irrigation system.
A taxpayer, who was developing a citrus
grove, planted citrus trees and installed and placed
in service an irrigation system. The taxpayer may