Pelaez and Sons, Inc. - Page 1

                                   114 T.C. No. 28                                    

                               UNITED STATES TAX COURT                                

                   PELAEZ AND SONS, INC., CHRISTINA P. HOOKER, TAX                    
                    MATTERS PERSON, Petitioner v. COMMISSIONER OF                     
                            INTERNAL REVENUE, Respondent                              

               Docket No. 18049-97.                     Filed May 30, 2000.           

                    Sec. 263A, I.R.C., enacted in 1986, requires the                  
               capitalization of developmental costs.  For plants with                
               preproduction periods that are 2 years or less, farmers                
               may be excepted from the capitalization requirements.                  
               For certain plants, including citrus plants grown in                   
               commercial quantities in the United States, the statute                
               requires that the standard for the 2-year test is to be                
               based on a national weighted average preproductive                     
               period for that type of plant.  If the preproductive                   
               period, so determined, is 2 years or less, citrus                      
               farmers could be excepted from the capitalization                      
               requirement of sec. 263A, I.R.C.  No guidance had been                 
               issued as to the national weighted average                             
               preproductive period for citrus trees as of 1989, when                 
               P began growing citrus trees.  Due to the lack of                      
               guidance, P did not deduct its developmental costs for                 
               the first 2 years and then determined, based on its                    
               growing experience, that some of its citrus trees were                 
               productive within 2 years.  Based on that experience,                  

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