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Additional citrus trees were planted during late 1991 (1991
trees), and the planting costs were capitalized and depreciated.
Based on the performance of the 1989 trees, it was believed that
the 1991 trees would be productive within their first 2 years.
The corporation, for its 1992 year and successive years, deducted
the developmental expenses and depreciation for the 1991 trees.
Respondent, in the FSAA notice, under section 263A,
disallowed the following deductions claimed with respect to the
1989 and 1991 trees:
Taxable year ended 1989 trees 1991 trees
Sept. 30, 1991 1$1,171,949 -0-
Sept. 30, 1992 244,692 $90,513
Sept. 30, 1993 -0- 116,980
1$649,126.11 of the amount claimed was paid in the 1991 tax
year and the remainder in the 1989 and 1990 tax years.
Production History--1989 Trees--The 1989 trees bore blossoms
during early 1990, fruit was visible during the spring 1990, and
80 boxes of grapefruit were sold for $220, which was net of the
cost of harvest borne by the buyer. The $220 of income was
reported on the corporation’s 1991 return. The 1989 trees were
affected by a 1989 frost, causing a loss of about 50 percent of
the grove. The 1989 trees also bloomed in early 1991, and fruit
was visible during the spring of 1991. The harvest began in
October 1991, and the corporation sold the second crop for
approximately $14,600 net of the harvesting costs borne by the
buyer.
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