David J. Lychuk and Mary K. Lychuk, et al. - Page 46

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          Godfrey v. Commissioner, T.C. Memo. 1963-1.  We observed that the           
          attorney’s fee was part of the cost of the development of a                 
          capital asset, in that it represented an unsuccessful attempt to            
          have the Goose Pond property rezoned for certain commercial use.            
          We observed that the travel and living expenses generally related           
          to the acquisition and development of the property.                         
               The Court of Appeals for the Sixth Circuit agreed with us              
          that all of the expenditures were capital expenditures.  The                
          court stated:                                                               
                    The Tax Court found that the cost of the “use                     
               survey” was a capital expenditure.  The court said: “It                
               represented their first step in the contemplated                       
               development of the property; and its benefits were                     
               obviously expected to extend beyond the year in which                  
               the survey was made.”  The test of an ordinary business                
               expense is whether it is of a recurring nature and its                 
               benefit is generally exhausted within a year.  An                      
               expenditure is of a capital nature “where it results in                
               the taxpayer’s acquisition or retention of a capital                   
               asset, or in the improvement or development of a                       
               capital asset in such a way that the benefit of the                    
               expenditure is enjoyed over a comparatively lengthy                    
               period of business operation.”  Louisiana Land &                       
               Exploration Co. v. Commissioner, 7 T.C. 507, aff’d, 161                
               F.2d 842, C.A. 5 * * *.  The purpose of the use survey                 
               was to benefit the land in a permanent way so that the                 
               owners could derive income from it on the basis of its                 
               best use.  We agree with the Tax Court that this was                   
               properly a capital expenditure.                                        
                    We are of the opinion that the same reasoning is                  
               applicable to the expenditure for attorney’s fee.                      
               Counsel for the * * * [taxpayer] concedes that if the                  
               effort had been successful the expenditure would not                   
               have been a deductible item.  We think there can be no                 
               distinction.  The purpose of the expenditure was to                    
               create a permanent benefit.  The fact that it created                  
               neither a permanent nor exhaustible benefit does not                   

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