Norwest Corporation and Subsidiaries - Page 23

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              M.  General Plan of Rehabilitation Doctrine                             


              Expenses incurred as part of a plan of rehabilitation or                
         improvement must be capitalized even though the same expenses if             
         incurred separately would be deductible as ordinary and necessary.           
         United States v. Wehrli, 400 F.2d 686, 689 (10th Cir. 1968);                 
         Stoeltzing v. Commissioner, 266 F.2d 374 (3d Cir. 1959), affg. T.C.          
         Memo. 1958-111; Jones v. Commissioner, 242 F.2d 616 (5th Cir. 1957),         
         affg. 24 T.C. 563 (1955); Cowell v. Commissioner, 18 B.T.A. 997              
         (1930).  Unanticipated expenses that would be deductible as                  
         business expenses if incurred in isolation must be capitalized when          
         incurred pursuant to a plan of rehabilitation.  California Casket            
         Co. v. Commissioner, 19 T.C. 32 (1952).  Whether a plan of capital           
         improvement exists is a factual question "based upon a realistic             
         appraisal of all the surrounding facts and circumstances, including,         
         but not limited to, the purpose, nature, extent, and value of the            
         work done".  United States v. Wehrli, supra at 689-690.                      
              An asset need not be completely out of service or in total              
         disrepair for the general plan of rehabilitation doctrine to apply.          
         For example, in Bank of Houston v. Commissioner, T.C. Memo. 1960-            
         110, the taxpayer's 50-year-old building was in "a general state of          
         disrepair" but still serviceable for the purposes used (before,              
         during, and after the work) and was in good structural condition.            
         The taxpayer hired a contractor to perform the renovation (which             
         included nonstructural repairs to flooring, electrical wiring,               




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