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year; (2) be for carrying on any trade or business; (3) be an
expense; (4) be a necessary expense; and (5) be an ordinary
expense. Commissioner v. Lincoln Sav. & Loan Association, 403
U.S. 345, 352 (1971).
Respondent does not dispute whether the expenditures in
issue were "paid or incurred during the taxable year", or whether
the expenditures were "necessary" in the accepted sense of
"'appropriate and helpful' for 'the development of the
[taxpayer's] business'". Id. at 353 (quoting Commissioner v.
Tellier, 383 U.S. 687, 689 (1966)). However, respondent does not
agree that any of the expenditures in issue can be deemed either
an "expense" or an "ordinary expense" capable of deduction under
section 162.6 Id. at 354.
In Commissioner v. Tellier, supra at 689-690, the Supreme
Court stated:
The principal function of the term "ordinary" in �
162(a) is to clarify the distinction, often difficult,
between those expenses that are currently deductible
and those that are in the nature of capital
expenditures, which, if deductible at all, must be
amortized over the useful life of the asset. * * *
6In this context, the term "expense" must be distinguished
from an expenditure that is capital in nature. As stated in
Commissioner v. Lincoln Sav. & Loan Association, 403 U.S. 345,
354 (1971), a payment that serves to create a separate and
distinct asset is, as an inevitable consequence, "capital in
nature and not an expense, let alone an ordinary expense". On
the other hand, the principal function of the term "ordinary" has
been to distinguish between expenditures that are capital in
nature and those that are currently deductible expenses.
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