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currently deduct the installment contracts expenditures to the
extent of the overhead expenses. We conclude that ACC’s payment
of the overhead expenses was not directly related to the
anticipated acquisition of any of the installment contracts. We
also conclude that any future benefit that ACC received from the
overhead expenses was incidental to its payment of them. As
discussed in detail below, we believe that the Supreme Court’s
mandate as to capitalization requires that an expenditure be
capitalized when it: (1) Creates or enhances a separate and
distinct asset, see Commissioner v. Lincoln Sav. & Loan
Association, 403 U.S. 345, 354 (1971), (2) produces a significant
future benefit, see INDOPCO, Inc. v. Commissioner, supra at 87-
89, or (3) is incurred “in connection with” the acquisition of a
capital asset,10 Commissioner v. Idaho Power Co., 418 U.S. 1, 13
(1974); see Woodward v. Commissioner, 397 U.S. 572, 575-576
(1970). Given the Supreme Court’s pronouncement in Woodward v.
Commissioner, supra at 577, that an acquisition-related
10 We, like the Court of Appeals for the Eleventh Circuit in
Ellis Banking Corp. v. Commissioner, supra at 1379, understand
the term “capital asset” to be used for this purpose in its
accounting sense to encompass any asset with a useful life
exceeding 1 year. See also United States v. Akin, 248 F.2d 742,
744 (10th Cir. 1957) (“it may be said in general terms that an
expenditure should be treated as one in the nature of a capital
outlay if it brings about the acquisition of an asset having a
period of useful life in excess of one year”. Such an
understanding is directly consistent with the Secretary’s
interpretation set forth in sec. 1.263(a)-2(a), Income Tax Regs.,
of examples of property for which the costs of acquisition are
capital expenditures.
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