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OPINION
The portion of the $17,067,339 court judgment that is in
issue is $6,956,590 because: (1) Petitioner capitalized
$1 million in its tax return, (2) respondent conceded an
allowance of $2,154,160 for postacquisition interest expense, and
(3) respondent conceded a reduction of $6,956,589 for the
disposal of acquisition assets. We must decide whether the
$6,956,590 in dispute should be capitalized as a cost of
acquisition or deducted as a business expense.
Section 162(a) provides a deduction for a taxpayer when an
expenditure is: (1) An expense, (2) an ordinary expense, (3) a
necessary expense, (4) incurred during the taxable year, and
(5) made to carry on a trade or business. Commissioner v.
Lincoln Sav. & Loan Association, 403 U.S. 345, 352-353 (1971).
An expenditure is a “necessary expense” when it is appropriate or
helpful to the development of a taxpayer’s business.
Commissioner v. Tellier, 383 U.S. 687, 689 (1966). An
expenditure is an “ordinary expense” when it is “normal, usual,
or customary” in the type of business involved. Deputy v.
Du Pont, 308 U.S. 488, 495-496 (1940). Petitioner bears the
burden of proving entitlement to the claimed deduction. Rule
142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
No current deduction is allowed for a capital expenditure.
See sec. 263(a)(1). Section 1.263(a)-2(a), Income Tax Regs.,
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Last modified: May 25, 2011