John and Louisa A. Hodel - Page 5

          See also Estate of Wilbur v. Commissioner, 43 T.C. 322, 327                 
          (1964); Vinson v. Commissioner, T.C. Memo. 1979-175, affd. per              
          curiam 621 F.2d 173 (5th Cir. 1980).  This regulation gives                 
          farmers the option of deducting or capitalizing expenditures                
          incurred in the preproductive period which bear characteristics             
          of both capital outlays and ordinary expenses, and, as such, fall           
          within a "band of gray".  Estate of Wilbur v. Commissioner, supra           
          at 328.  Preproductive (or cultural) expenditures include                   
          "irrigation, cultivation, pruning, fertilizing, spraying, and               
          other care expenses".  Maple v. Commissioner, supra.                        
               In the present case, petitioners incurred most of their                
          preparatory expenses during 1985, when they purchased and cleared           
          the land, bought the seedlings, and planted the nursery.  Of the            
          expenses claimed on their 1986 return, all but $42 spent for                
          young plants or seeds constitute preproductive expenses since               
          they were incurred in the maintenance of the ligustrum trees.  As           
          such, petitioners had the option to either capitalize or deduct             
          these expenses under section 1.162-12(a), Income Tax Regs.                  
               However, for taxable years commencing after December 31,               
          1986, the Uniform Capitalization Rules (UCR) of section 263A                
          generally apply to property produced by a taxpayer or acquired              
          for resale that has a preproductive period of more than 2 years.            
          Under this section, direct and indirect costs allocable to such             
          property are required to be capitalized.  The ligustrum seedlings           
          purchased by petitioners qualify as property acquired for resale            

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011