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the Route 83 relocation, the direction, capacity, pressure, and
product flow of petitioner's pipeline remained unchanged,
including the direction, capacity, pressure, and product flow at
the Route 83 location. The Route 83 relocation was intended to
and did keep petitioner's pipeline in the same ordinary and
normal working condition as it was in before the relocation.
Discussion
Section 162(a) allows the deduction of "all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business". Section 1.162-4, Income Tax
Regs., provides:
The cost of incidental repairs which neither materially
add to the value of the property nor appreciably
prolong its life, but keep it in an ordinarily
efficient operating condition, may be deducted as an
expense * * *. Repairs in the nature of replacements,
to the extent that they arrest deterioration and
appreciably prolong the life of the property, shall
* * * be capitalized * * *
On the other hand, section 263(a)(1) provides that "No deduction
shall be allowed for * * * Any amount paid out for new buildings
or for permanent improvements or betterments made to increase the
value of any property or estate." Such an amount "is a capital
expenditure that is taken into account through inclusion in
inventory costs or a charge to capital accounts or basis". Sec.
1.263(a)-1(b), Income Tax Regs.
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Last modified: May 25, 2011