Stephen H. Glassley and Judith Glassley, et al. - Page 51

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                                       OPINION                                        
          A.  The Criteria That Must Be Satisfied for Expense Treatment               
          Under Section 174                                                           
               Section 174(a)(1)18 states, as a general rule, that                    
          "research or experimental expenditures which are paid or incurred           
          by * * * [a taxpayer] during the taxable year in connection with            
          his trade or business", may, at the election of the taxpayer, be            
          treated as expenses not chargeable to capital account.  The                 
          expenditures so treated shall be allowed as a deduction.  Sec.              
          174(a)(1).  A taxpayer is entitled to a deduction for research              
          and experimental expenditures with respect to expenses paid or              
          incurred by the taxpayer directly as well as expenses paid or               


          18   Sec. 174 provides in pertinent part:                                   
          SEC. 174.  RESEARCH AND EXPERIMENTAL EXPENDITURES.                          
               (a)  Treatment as Expenses.--                                          
                    (1)  In general.--A taxpayer may treat research or                
               experimental expenditures which are paid or incurred by him            
               during the taxable year in connection with his trade or                
               business as expenses which are not chargeable to capital               
               account.  The expenditures so treated shall be allowed as a            
               deduction.                                                             
                        *    *     *     *     *     *     *                          
               (c)  Land and Other Property.--This section shall not apply            
          to any expenditure for the acquisition or improvement of land, or           
          for the acquisition or improvement of property to be used in                
          connection with the research or experimentation and of a                    
          character which is subject to the allowance under section 167               
          (relating to allowance for depreciation, etc.) or section 611               
          (relating to allowance for depletion); but for purposes of this             
          section allowances under section 167, and allowances under                  
          section 611, shall be considered as expenditures.                           





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