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P, in 1991, claimed to be excepted from the
capitalization requirement of sec. 263A, I.R.C., and
deducted the preproductive costs for 1989, 1991, and
1992. R determined that P was not entitled to deduct
the costs.
Held: P is not entitled to use its own growing
experience to measure whether it meets the 2 years or
less standard. Held, further, P must capitalize its
preproductive development costs for its citrus trees.
Philip A. Diamond and Daniel C. Johnson, for petitioner.
Charles A. Baer and James F. Kearney, for respondent.
GERBER, Judge: Respondent issued a notice of final S
corporation administrative adjustment (FSAA) for Pelaez and Sons,
Inc.’s (corporation), taxable years ended September 30, 1992,
1993, and 1994, reflecting net adjustments in the amounts of
$1,514,209, $46,148, and ($155,814), respectively. The question
we consider is whether the corporation is required, under the
provisions of section 263A,1 to capitalize developmental expenses
in connection with citrus trees. Respondent did not issue
guidance as to the “nationwide weighted average preproductive
period” for citrus trees (the standard in section 263A), and we
must decide whether the corporation’s use of its own experience
will suffice to meet the statutory standard. If, under section
263A, the corporation is required to capitalize, it argues that
1 Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended and in effect for the taxable
periods under consideration.
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