- 9 -
income if they are related to business or profit-
seeking activity. Once that nexus is established,
however, the taxpayer still cannot be sure of deducting
the expenses. Rather, an additional question must be
answered: Are the expenses "capital" in nature under �
263? If they are capital, they cannot be deducted as
business expense. [Citations omitted.]
Whether an expenditure may be deducted or must be
capitalized is a question of fact. INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 86 (1992); A. E. Staley Manufacturing
Co. v. Commissioner, 105 T.C. 166, 193 (1995).
Petitioners characterize some phases of their land
development activities as lobbying, citing section 162(e), or
marketing. In this context, they seek to distinguish the
situation involved in the earlier years and disposed of in
Hustead v. Commissioner, T.C. Memo. 1994-374, on the basis that
those years involved litigation activities whereas negotiating
activities were the focus in the years involved herein. We think
this is a distinction without a difference. In any event,
petitioners' characterizations are not determinative of
deductibility. The question remains what is the origin or nature
of the transaction out of which the expenses arose. Petitioners
refer to some expenses as those of being in business, e.g.,
office supplies, alleging that respondent has disallowed these
expenses on a theory of guilt by association. Again, the same
analysis governs these expenses. It is not the nature of the
item paid for, but the nature of the transaction giving rise to
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011