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Commissioner, 147 F.2d 493 (5th Cir. 1945). As the Court of
Appeals noted in quoting the Tax Court in Driscoll v.
Commissioner, supra at 494:
“acceptance of petitioner’s theory would result in a
deductible loss in practically every construction
project. Common experience tells us that no
construction job is carried out with such perfection
that some material, because of error, mistake, or even
slight change in design, is not removed and therefore
does not remain a part of the completed structure.
Such expenditures are, we think, clearly a cost of
construction.”
Likewise, the additional costs incurred by FRGC for changes that
were made to the 1997 plan were a part of the development costs
for the property and the project.
In substance, the 1996 purchase agreement was merely a step
in FRGC’s continuing and successful attempts to acquire the
subject property for Flagstaff Ranch. Accordingly, we conclude
that FRGC did not sustain a deductible abandonment loss in 1997.
1998 Expenses
FRGC deducted $189,447 in other expenses on its 1998 return.
Respondent disallowed FRGC’s claimed deductions in 1998, because
they were not ordinary and necessary but were capital in nature.
Section 162(a) permits a deduction for all “ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business”. Sec. 162(a). No current
deduction is allowed for a capital expenditure. Sec. 263(a)(1).
The regulations provide generally that “The cost of acquisition
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