- 17 -
Whether November Is Entitled To Write Off or Depreciate Over the
10-year Term of the Lease The Improvements Made to the Chestnut
Property
The Chestnut property had been used for processing fish and
needed substantial improvements before bingo operations could
commence.8 November expended $222,171, $166,553, and $25,915
during 1990, 1991, and 1992, respectively, to convert it into a
bingo operation. Based on those expenditures, November claimed
depreciation on a 10-year basis (equal to the 10-year term of the
lease) in the respective amounts of $30,545, $40,168, and $41,464
for the 1991 through 1993 tax years. Respondent determined that
petitioner was entitled to use a 31.5-year recovery period under
the MACRS, resulting in allowances of $7,274, $12,376, and
$13,165, respectively. On brief, petitioner also claimed that
November would, alternatively, be entitled to deduct the entire
expenditure (about $400,000) as lease acquisition cost that would
not be subject to the MACRS requirements.
Petitioner had relied on section 1.162-11(b), Income Tax
Regs., which held that lessees may be entitled to use the length
of the lease as the recovery period for leasehold improvements.
Respondent correctly points out that section 168(i)(8) (added by
the Tax Reform Act of 1986) made the above-referenced regulation
8 Because bingo is a game of chance where the bingo operator
is the only participant who always “wins”, it might be said that
the Chestnut property was to continue being used for the
“processing of fish”.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011