T.C. Memo. 2002-231
UNITED STATES TAX COURT
MICHAEL A. MCGRATH AND FRANCES Y. MCGRATH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 126-99. Filed September 18, 2002.
In 1995, Ps leased (as lessee) retail space in a
shopping center to operate a bakery. When Ps entered into
the lease, the leased space was nothing more than a dirt
floor enclosed by temporary walls; the leased space was not
serviced by any utilities. The lease obligated Ps to make
substantial permanent improvements to the leased space at
their own expense. Other than trade fixtures, the permanent
improvements Ps made to the leased space became the property
of the lessor upon installation.
Ps did not make a sec. 179, I.R.C. 1986, election on
their timely filed tax return for either 1995 or 1996. Ps
did not file a timely amended tax return for either 1995 or
1996.
1. Held: Ps’ expenditures for the permanent
improvements they made to the leased space constitute
capital expenditures that are not currently deductible.
Sec. 263, I.R.C. 1986. Ps’ cost recovery for the years in
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