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does not hinge on the amount of value added to property but looks
at the nature of the expense itself. See Dominion Resources Inc.
v. United States, 219 F.3d 359, 371 (4th Cir. 2000). When the
nature of an expenditure bears a direct relation to the
acquisition of a capital asset, such as is the case here, the
expenditure must be capitalized.
The amicus for FNMA expands on petitioners’ first assertion
by reference to section 1.263(a)-1(b), Income Tax Regs. That
section provides: “In general, the amounts referred to in
paragraph (a) of this section include amounts paid or incurred
(1) to add to the value, or substantially prolong the useful
life, of property owned by the taxpayer * * * or (2) to adapt
property to a new or different use.” The amicus also references
the following passage from this Court’s Memorandum Opinion in
Mayer v. Commissioner, T.C. Memo. 1994-209: “It appears from the
record that these transaction fees consisted in large part of
general overhead rather than costs specifically allocable to
individual purchases and sales. These expenses are not
capitalizable under section 263.”32 The amicus for FNMA
concludes that the salaries and benefits are indirect costs
outside the realm of section 263(a).
32 This passage is likewise referenced by the amicus for
FHLMC.
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