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A capital expenditure is not an "ordinary" expense within the
meaning of section 162(a) and is therefore not currently
deductible. Commissioner v. Lincoln Sav. & Loan Association,
supra at 353; see sec. 263(a)7. The principal effect of
characterizing a payment as either an ordinary expense or a
capital expenditure concerns the timing of the taxpayer's cost
recovery. A business expense is currently deductible, while a
capital expenditure is normally amortized and depreciated over
the life of the relevant asset, or, if no specific asset or
useful life can be ascertained, is deductible upon dissolution of
the enterprise. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 83-
84 (1992). Whether an expenditure may be deducted or must be
capitalized is a question of fact. The "'decisive distinctions'
between current expenses and capital expenditures 'are those of
degree and not of kind'". Id. at 86 (quoting Welch v. Helvering,
290 U.S. 111, 114 (1933)).
An expenditure is capital if it creates or enhances a
separate and distinct asset. However, the existence of a
separate and distinct asset is not necessary in order to classify
7Capitalization under sec. 263 takes precedence over current
deduction under sec. 162. Sec. 161 provides that the
deductibility of the items specified in part VI of the Code
(secs. 161 and following, relating to items deductible) is
"subject to the exceptions set forth in Part IX (sec. 261 and
following, relating to items not deductible)." Sec. 261
clarifies the point from the opposite perspective: "no deduction
shall in any case be allowed in respect of the items specified in
this part [IX, secs. 261 through 280G]." See INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992).
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