David J. Lychuk and Mary K. Lychuk, et al. - Page 22




                                       - 19 -                                         
          expenditure is a capital expenditure when its origin “is in the             
          process of acquisition itself”, we understand the phrase “in                
          connection with” in the third situation to mean that the                    
          expenditure must be directly related to the acquisition.                    
               Our analysis begins with the relevant statutory text.  We              
          apply that text in accordance with the related Treasury income              
          tax regulations, the validity of which has not been challenged by           
          either party, and the interpretation of that text and those                 
          regulations primarily by the United States Supreme Court.                   
          Section 162(a) provides that “There shall be allowed as a                   
          deduction all the ordinary and necessary expenses paid or                   
          incurred during the taxable year in carrying on any trade or                
          business”.  The Treasury regulations specify that ordinary and              
          necessary business expenses include “the ordinary and necessary             
          expenditures directly connected with or pertaining to the                   
          taxpayer’s trade or business”, sec. 1.162-1(a), Income Tax Regs.,           
          such as “a reasonable allowance for salaries or other                       
          compensation for personal services actually rendered”, sec.                 
          1.162-7(a), Income Tax Regs.  The Supreme Court has explained               
          that a cash method taxpayer such as ACC may deduct an expenditure           
          under section 162(a) if the expenditure is:  (1) An expense,                
          (2) an ordinary expense, (3) a necessary expense, (4) paid during           
          the taxable year, and (5) made to carry on a trade or business.             
          See Commissioner v. Lincoln Sav. & Loan Association, supra at               






Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011