- 39 -
create significant future benefits;3 and (3) were not incurred in
connection with the acquisition of a capital asset.4
Capitalization is generally required for expenditures that
are incurred by a taxpayer “in connection with” the acquisition
of an asset. Such expenditures include more than just the stated
purchase price of the asset. For example, wages paid in
connection with the acquisition of a capital asset or legal fees
paid to consummate an acquisition must be capitalized. See
Commissioner v. Idaho Power Co., 418 U.S. 1 (1974); American
Stores Co. & Subs. v. Commissioner, 114 T.C. 458 (2000).
In Commissioner v. Idaho Power Co., supra at 13, the Supreme
Court observed:
Of course, reasonable wages paid in the carrying on of
a trade or business qualify as a deduction from gross
income. * * * But when wages are paid in connection
with the construction or acquisition of a capital
asset, they must be capitalized and are then entitled
to be amortized over the life of the capital asset so
acquired. * * *
In American Stores Co. & Subs. v. Commissioner, supra at 469, we
explained:
A particular cost, no matter what its type, may be
deductible in one context but may be required to be
capitalized in another context. Simply because other
cases have allowed a current deduction for similar
3See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 87-88
(1992).
4See Commissioner v. Idaho Power Co., 418 U.S. 1, 13 (1974);
American Stores Co. & Subs. v. Commissioner, 114 T.C. 458, 469
(2000).
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