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To the same effect, see sec. 1.61-8(c), Income Tax Regs;12 see
also sec. 109.
The parties have stipulated that this exception applies to
allow petitioners rent expense deductions of $3,123 for 1995 and
$15,616 for 1996, for otherwise capital expenditures. This is
founded on the parties’ stipulation that “$18,739.00 of the
expenditures * * * were in lieu of rental payments * * * to be
made by petitioners over the six (6) month period of December,
1995 through May, 1996, inclusive.” This latter part of the
stipulation is, in turn, founded on the provisions of the Lease
with regard to petitioners’ rent obligations and construction
obligations, as described supra in the Findings of Fact.
We now consider whether any amount in addition to the
stipulated $18,739 was intended to be payments made in lieu of
rent.
12 Sec. 1.61-8(c), Income Tax Regs., provides, in pertinent
part, as follows:
Sec. 1.61-8 Rents and Royalties.–-
* * * * * * *
(c) Expenditures by lessee. As a general rule, if a
lessee pays any of the expenses of his lessor such payments
are additional rental income of the lessor. If a lessee
places improvements on real estate which constitute, in
whole or in part, a substitute for rent, such improvements
constitute rental income to the lessor. Whether or not
improvements made by a lessee result in rental income to the
lessor in a particular case depends upon the intention of
the parties, which may be indicated either by the terms of
the lease or by the surrounding circumstances. * * *
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