- 40 -
to the taxpayer's existing business. The taxpayer, relying on
Commissioner v. Lincoln Sav. & Loan Association, supra, argued
that these costs did not have to be capitalized because no
separate and distinct asset was created. The Supreme Court
disagreed, stating:
Lincoln Savings stands for the simple proposition
that a taxpayer's expenditure that "serves to create or
enhance * * * a separate and distinct" asset should be
capitalized under � 263. It by no means follows,
however, that only expenditures that create or enhance
separate and distinct assets are to be capitalized
under � 263. * * * In short, Lincoln Savings holds
that the creation of a separate and distinct asset well
may be a sufficient, but not a necessary, condition to
classification as a capital expenditure. * * *
[INDOPCO, Inc. v. Commissioner, supra at 86-87.]
Emphasizing the importance of the realization of a significant
future benefit in determining whether an expenditure should be
capitalized, the Supreme Court upheld the lower courts' findings
that the expenditures produced significant future benefits that
required the costs to be capitalized.17 INDOPCO, Inc. v.
Commissioner, supra at 90; Connecticut Mut. Life Ins. Co. v.
Commissioner, 106 T.C. at 453. Thus, whether an expenditure
produces a significant future benefit beyond the current taxable
year remains a prominent, indeed a predominant, characteristic of
an expenditure that must be capitalized.
17The Supreme Court found that the lower courts' findings of
fact were amply supported by the record. INDOPCO, Inc. v.
Commissioner, 503 U.S. at 88.
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