Capital expenditures - Uncle Fed's Tax*Board

Capital expenditures
ments with a political subdivision of a State for the
financing, construction, and operation of an industrial
project is considered to be the owner of the
project. The primary agreement is in the form of
a lease of the project by the city to the corporation
with an option to purchase. The political subdivision
obtained funds to finance the purchase or
construction of the project by issuing industrial
development bonds. The corporation will take into
account any premium or discount on the bonds.
Other tax treatment resulting to the corporation is
set forth. Amplified to provide that bond counsel
fees, printing costs, and other related fees incurred
by a corporation in the issuance of the bonds must
be amortized over the life of the bonds. §§1.38-1,
1.61-1, 1.61-12, 1.162-1, 1.163-1, 1.164-1,
1.167(a)-1, 1.263(a)-1. (Secs. 38, 61, 162, 163,
164, 167, 263; ’86 Code.)
Rev. Rul. 68–590, 1968-2 C.B. 66; Rev. Rul.
73-134, 1973-1 C.B. 60.
66.66 Initiation fees; securties exchange. Initiation
fees, paid only once and in addition to the
annuel dues, received by a securities exchange
from each new member for the use of the
exchange’s services and facilities constitute gross
income and not contributions to capital. The initiation
fees are to be capitalized by the payers as part
of the cost basis of their memberships. G.C.M.
4015 revoked and Rev. Rul. 72–123 distinguished.
§§1.61-1, 1.118-1, 1.162-1, 1.263(a)-1. (Secs.
61, 118, 162, 263; ’86 Code.)
Rev. Rul. 77-354, 1977–2 C.B. 50.
66.67 Insurance; malpractice; reserve premiums;
retrospective rate credit refund clause.
Reserve premiums paid under a medical malpractice
liability insurance policy that are subject to a
retrospective rate credit refund clause are deductible
in the year paid as business expenses.
§§1.162–1, 1.263(a)-1, 1.461-1. (Secs. 162, 263,
461; ’86 Code.)
Rev. Rul. 83-66, 1983-1 C.B. 43.
66.68 Insurance and storage costs; aging
whiskey. Insurance and storage costs incurred
during the aging process of whiskey purchased as
an investment are capital expenditures to be
treated as part of the acquisition costs of the whiskey.
§§1.212–1, 1.263(a)-1, 1.1012-1. (Secs. 212,
263, 1012; ’86 Code.)
Rev. Rul. 70-356, 1970-2 C.B. 62.
66.69 Insurance premiums; construction
loan. Insurance premiums paid in connection with
a construction loan for business improvements
may, at the election of the taxpayer, be capitalized.
Such an election is binding until the improvements
covered by the loan are completed. §39.24(a)–6.
(Sec. 24(a), ’39 Code; Sec. 266, ’86 Code.)
Rev. Rul. 56-264, 1956-1 C.B. 153.
66.70 Insurance premiums; protection during
construction of new building. Insurance premiums
for public liability and workman’s compensation
insurance paid in connection with the
construction of a taxpayer’s new building when
the taxpayer takes on the responsibility of a general
contractor are capital expenditures. These
premiums are not deductible as a business
expense. §§1.162–1, 1.263(a)–1. (Secs. 162, 263;
’86 Code.)
Rev. Rul. 66-373, 1966-2 C.B. 103.
66.71 Intangible development costs; affiliated
group; consolidated returns. Treatment of
intangible development costs incurred by members
of an affiliated group that files consolidated
returns where only certain members have elected
to deduct such expenses currently or there are
intergroup transfers of operating properties and
new acquisitions. I.T. 3763 superseded.
§§1.612-4, 1.1502-17. (Secs. 612, 1502; ’86
Code.)
Rev. Rul. 69-590, 1969-2 C.B. 170.
66.72 Intangible drilling and development
costs (IDC); associated with property located
outside the United States. IDC associated with
productive wells located on foreign property, to
the extent represented by physical property, must
be recovered through depreciation by the taxpayer
that has elected to capitalize the IDC under section
263(i)(2)(A), Rev. Rul. 67–34 is obsoleted with
respect to IDC after December 31, 1986.
§§1.263(c)-1, 1.612-4. (Secs. 263, 612; ’86
Code.)
Rev. Rul. 87-134, 1987-2 C.B. 69.
66.73 Intangible drilling and development
costs; carbon dioxide well. Carbon dioxide
(CO2) produced from a well is subject to percentage
depletion at the rate of 14 percent as a mineral
described in the term “all other minerals” in section
613(b)(7), The costs of drilling CO2 source
wells to supply CO2 to be injected in certain oil
fields are not subject to the option to expense
intangible drilling and development costs.
§§1.263(c)-1, 1.611-1, 1.612-4, 1.613-2,
1.613A-1. (Secs. 263, 611, 612, 613, 613A; ’86
Code.)
Rev. Rul. 82-17, 1982-1 C.B. 95.
66.74 Intangible drilling and development
costs; drilling to acquire arrangement. Only
half of the intangible drilling and development
costs of drilling the first well, paid by a taxpayer
for an assignment of an undivided one-half of the
oil and gas operating interest in the tract of land,
is subject to the option to charge such costs to
expense or to capital. §§1.263(c)–1, 1.612-4.
(Secs. 263, 611, 612; ’86 Code.)
Rev. Rul. 70-657, 1970-2 C.B. 70.
66.75 Intangible drilling and development
costs; election. Section 263, as amended by the
Energy Tax Act of 1978 to grant an option to
deduct intangible drilling and development costs
incurred with respect to geothermal wells, does
not permit a new election for the treatment of such
costs for oil and gas wells. §§1.263(c)–1, 1.612-4.
(Secs. 263, 612; ’86 Code.)
Rev. Rul. 80-2, 1980-1 C.B. 61.
66.76 Intangible drilling and development
costs; exploratory holes. Costs incurred to drill
expendable holes to determine the location and
delineation of offshore hydrocarbon deposits and
capable of conducting hydrocarbons to the surface
on completion are within the option to expense
intangible drilling and development costs (IDC)
provided by section 263(c), regardless of whether
there is an intent to produce hydrocarbons.
§§1.263(a)-1, 1.612-4. (Secs. 263, 612; ’86
Code.)
Rev. Rul. 88-10, 1988-1 C.B. 112.
66.77 Intangible drilling and development
costs; geothermal steam wells. For taxable years
1960 through 1962, geothermal steam wells were
gas wells for purposes of the percentage depletion
allowance and the deduction for intangible drilling
a costs. (Secs. 263, 611, 613; ’86 Code.)
Arthur E. Reich, 52 T.C. 700, Nonacq. 1979-1
C.B. 2.
66.78 Intangible drilling and development
costs; offshore platforms. Costs, including
expenditures for engineering and design specifications,
incurred to acquire offshore platforms
through contracts with builders in connection with
oil and gas properties are to be capitalized and
recovered through depreciation. However, costs to
transport the platform in its component form, performed
under separate contract, including specifications
relating thereto, and costs to set the platform
in position at the site may be capitalized or
expensed. §§1.263(c)–1, 1.612–4. (Secs. 263,
612; ’86 Code.)
Rev. Rul. 70-596, 1970-2 C.B. 68.
66.79 Intangible drilling and development
costs; offshore platforms. Guidance is provided
regarding which costs incurred in the course of
fabricating, transporting and installing an offshore
oil and gas drilling and production platform and
the related facilities and equipment are within the
option to expense intangible drilling and development
costs provided by section 263(c) of the Code.
§§1.263(c)-1, 1.612-4. (Secs. 263, 612; ’86
Code.)
Rev. Rul. 89-56, 1989-1 C.B. 83.
66.80 Intangible drilling and development
costs; operating interest. The proper treatment is
shown for an arrangement under which, in consideration
for drilling an oil and gas well at a designated
location on a leased tract of land, the driller
receives from the lessee of the land an assignment
of the entire working interest in the drill site and
an undivided fraction of the working interest in the
remainder of the tract. §§1.61–2, 1.263(c)-1,
1.451-1, 1.612-4, 1.614-1, 1.1001-1,
301.7805-1. (Secs. 61, 263, 451, 612, 614, 1001,
7805; ’86 Code.)
Rev. Rul. 77-176, 1977-1 C.B. 77.
66.81 Intangible drilling and development
costs; operating interest; capital or expense.
The intangible drilling and development costs that
arc subject to an option to charge to capital or
expense are limited to those that are attributable to
a fractional share of the operating interest that the
carrying party received as his “permanent” interest
upon the exercise of an option by the carried
party to convert a retained overriding royalty into
50 percent of operating interest when cumulated
gross production from an oil and gas well equalled
a specified amount. The remainder of such costs,
including the depreciable equipment furnished, is
attributable to the fraction of the operating interest
held by the carried party upon his exercise of the
option, and must be capitalized by the carrying
party as the depletable capital cost of the interest
acquired. §1.612–4. (Sec. 612, ’86 Code.)
Rev. Rul. 70-336, 1970-1 C.B. 145.
66.82 Intangible drilling and development
costs; operating interest; capital or expense. A
taxpayer agreed to drill and operate oil wells on
each of two noncontiguous tracts in exchange for
the entire operating interest in each tract until the
aggregate gross income from both tracts equaled
the cost of developing and operating both tracts
and a 75% operating interest in each tract thereafter.
The taxpayer’s deduction for intangible drilling
and development costs is limited to the portion
of those costs attributable to the 75%
operating interest in each tract. Rev. Rul. 70–336
modified. §§1.263(c)-1, 1.612-4, 1.614-1,
301.7805-1. (Secs. 263, 612, 614, 7805; ’86
Code.)
Rev. Rul. 80-109, 1980-1 C.B. 129.
66.83 Intangible drilling and development
costs; operating interest; capital or expense. A
carrying party who drills, completes, equips, and
operates the first well in return for the entire operating
interest in an oil and gas lease, until he
recoups one-half of such costs, and thereafter
owns an undivided one-fourth operating interest
may only deduct one-fourth of the intangible drilling
and development costs provided he makes a
proper election. The remaining three-fourths of
such costs must be capitalized and included in his
basis in the lease, recoverable through depletion.
§§1.263(c)-1, 1.611-1, 1.612-4. (Secs. 263, 611,
612; ’86 Code.)
Rev. Rul. 71-206, 1971-1 C.B. 105.
66.84 Intangible drilling and development
costs; operating interest; capital or expense. A
carrying party who drills, completes, equips, and
operates an oil and gas well in return for the entire
operating interest in the lease during the period of
complete recoupment (payout) of such costs, and
thereafter owns an undivided one-half operating