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Respondent audited ACC’s 1993 and 1994 taxable years. As to
1993, respondent disallowed $198,626 of installment contracts
expenditures deducted by ACC, determining that these expenses
were capital expenditures relating to assets having a life
exceeding one year.8 Respondent also disallowed $55,027 and
$66,652 of PPM expenditures deducted by ACC for 1993 and 1994,
respectively, determining that these expenditures were capital
expenditures which had to be amortized over the terms of the
Notes. The $55,027 included legal fees of $7,274 and a
registration fee of $1,250 paid in 1993 for the private placement
offering that ACC abandoned in 1994. The $66,652 included legal
fees of $21,792 paid in 1994 for the private placement offering
that ACC abandoned in 1994. The remaining adjustments as to the
PPM expenditures consisted of legal fees and commissions paid in
connection with the PPM.
OPINION
We must decide whether ACC may expense any of the disputed
costs or must capitalize them as expenditures to be deducted in
later years. Income tax deductions are a matter of legislative
grace, and petitioners bear the burden of proving ACC’s
entitlement to the claimed deductions. See Rule 142(a); INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Interstate Transit
8 Respondent made no adjustment to ACC’s deduction of
installment contracts expenditures for 1994.
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