- 22 -
The only evidence regarding TUP 130's intention is the
Lease, which, as set forth above, manifests an intent consistent
with petitioners’; namely, that only $18,739 of the cost of the
Improvements is a rent substitute.
On the basis of the preponderance of the evidence, we
conclude that the Improvements are a rent substitute to the
extent of $18,739 only.
Section 162(a)(3) addresses more than just “rentals”; it
also addresses “other payments”. In light of Michael’s testimony
and petitioners’ above-quoted statements on brief, it may be that
petitioners implicitly contend that the cost of the Improvements
is deductible under section 162(a)(3) as “other payments”. We
previously concluded that the Improvements are capital
expenditures. Capital expenditures made for betterments and
additions to leased premises do not fall within the phrase “other
payments”. Duffy v. Central R.R., 268 U.S. 55, 64 (1925).14
14 The statutory language being construed in Duffy v.
Central R.R., 268 U.S. 55, 61 (1925), was sec. 12(a) (First) of
the Revenue Act of 1916, ch. 463, 39 Stat.767, which states, in
pertinent part, as follows:
First. All the ordinary and necessary expenses paid
within the year in the maintenance and operation of its
business and properties, including rentals or other payments
required to be made as a condition to the continued use or
possession of property to which the corporation has not
taken or is not taking title, or in which it has no equity.
The Supreme Court analyzed the situation as follows (268 U.S. at
63-64):
(continued...)
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011