- 64 -
We reject petitioners’ second argument. As to their first
assertion, we disagree with them that acquisition costs are
capitalizable under section 263(a) only if they create or add
value to a capital asset.30 In Dustin v. Commissioner, 467 F.2d
47, 49-50 (9th Cir. 1972), affg. 53 T.C. 491 (1969), the taxpayer
was a shareholder of an S corporation (Capitol) that agreed to
acquire the stock of a company that owned and operated radio
station KGMS. In 1961, Capitol incurred $12,460 of legal,
engineering, and accounting fees in connection with the transfer
to Capitol of control of station KGMS’ radio-broadcasting
license. The taxpayer deducted his proportionate share of these
expenses, and the Commissioner disallowed the deduction asserting
that the expenses were capital expenditures. The taxpayer argued
in this Court that he could deduct $10,960 of the expenses
because they were attributable to a hearing held by the Federal
Communications Commission on this matter and which did not add
any value to the acquired stock. We disagreed with the taxpayer
that any of these amounts were currently deductible. On appeal,
so did the Court of Appeals for the Ninth Circuit. According to
30 As mentioned above, we understand the term “capital
asset” to be used in its accounting sense and not in accordance
with its meaning under sec. 1221. We add to our prior discussion
that the term as applied to capitalization issues does not arise
from the Code but is a byproduct of judicial interpretation. On
the basis of our understanding of the meaning of the term, we
reject petitioners’ contention that costs related to an
“ordinary” asset under sec. 1221 can never be a capital
expenditure.
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