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In Millinery Ctr. Bldg. Corp. v. Commissioner, supra, the
facts were essentially the same as in Cleveland Allerton Hotel,
Inc. v. Commissioner, supra, and the taxpayer, relying on the
Court of Appeals’ holding in Cleveland Allerton Hotel, Inc.,
sought to deduct the excess of the acquisition cost of the
underlying leased land over the unimproved value of the land.
This Court, choosing not to follow the holding of the Court of
Appeals for the Sixth Circuit, held that the excess was not
currently deductible as an ordinary and necessary business
expense. In addition, this Court held that the taxpayer was not
entitled to add the excess of the amount paid over the unimproved
value of the land to the depreciable basis of the building.
On appeal, the Court of Appeals for the Second Circuit
affirmed this Court’s holding that the excess was not currently
deductible as a business expense. The Court of Appeals, however,
reversed our holding that the taxpayer was not entitled to
allocate a portion of the acquisition cost to the depreciable
basis of the building. Accordingly, the Court of Appeals agreed
with this Court and disagreed with the Court of Appeals for the
Sixth Circuit with respect to whether any portion of the cost
allocable to the lease was currently deductible. Because of this
conflict between the Courts of Appeals, the Supreme Court granted
the taxpayer’s certiorari petition.
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