Vanalco, Inc., a Delaware S Corporation, Richard L. Smith, Tax Matters Person - Page 16




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               Whether an expenditure may be deducted or must be                      
          capitalized is a question of fact.  See INDOPCO, Inc. v.                    
          Commissioner, supra at 86; Norwest Corp. & Subs. v. Commissioner,           
          supra at 280; Plainfield-Union Water Co. v. Commissioner, supra             
          at 337-338.  The Supreme Court has recognized that                          
               the "decisive distinctions" between current expenses                   
               and capital expenditures "are those of degree and not                  
               of kind," and that because each case "turns on its                     
               special facts" the cases sometimes appear difficult to                 
               harmonize.  [INDOPCO, Inc. v. Commissioner, supra at                   
               86; citations omitted.]                                                
               Thus, "Courts have adopted a practical case-by-case approach           
          in applying the principles of capitalization and deductibility."            
          Norwest Corp. & Subs. v. Commissioner, supra at 280 (quoting                
          Wolfsen Land & Cattle Co. v. Commissioner, supra at 14).                    
          Accordingly, we shall not attempt to harmonize the decided cases;           
          "Rather, we shall discuss the facts as reflected in the record              
          before us and arrive at a conclusion, recognizing that we shall             
          be engaging in an exercise in line drawing".  Badger Pipe Line              
          Co. v. Commissioner, T.C. Memo. 1997-457.                                   
          Replacement of the Cell Linings                                             
               The parties agree on brief that the cell lining performs a             
          function that is vital and integral to the smelting process.  The           
          cell lining acts as the cathode, and without the passage of                 
          electricity from the anode to the cathode, there would be no                
          electrolytic production of aluminum.  Furthermore, the cell will            






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