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shall in any case be allowed in respect of the items specified in
this part”; i.e., part IX (Items Not Deductible).
Section 263 is included in part IX. Section 263(a)
provides, in language that dates back to the Revenue Act of 1864,
sec. 117, 13 Stat. 282, see United States v. Hill, 506 U.S. 546,
556 n.6 (1993) (“section 263(a)(1) has one of the longest
lineages of any provision in the Internal Revenue Code.”), that
“No deduction shall be allowed for--(1) Any amount paid out for
new buildings or for permanent improvements or betterments made
to increase the value of any property or estate.” The Treasury
regulations interpret this text by listing the following item as
an example of a capital expenditure: “The cost of acquisition,
construction, or erection of buildings, machinery and equipment,
furniture and fixtures, and similar property having a useful life
substantially beyond the taxable year.” Sec. 1.263(a)-2(a),
Income Tax Regs.
The determination of whether an expenditure is deductible
under section 162(a) or must be capitalized under section 263(a)
is not always a straightforward or mechanical process. “[E]ach
case ‘turns on its special facts’”, and “the cases sometimes
appear difficult to harmonize.” INDOPCO, Inc. v. Commissioner,
supra at 86 (quoting Deputy v. du Pont, supra at 496).
In accordance with the current law on capitalization, an
expenditure may be deductible in one setting but capitalizable in
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