Badger Pipe Line Company - Page 8

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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.                
               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