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Petitioner argues that its garments and dust control items
are materials and supplies that are consumed within the year that
they are placed in service, and thus the cost of these items are
ordinary and necessary to the operation of its industrial laundry
business and are properly expensed when placed in service under
section 162 and section 1.162-3, Income Tax Regs.
Supplies used in the taxpayer’s trade or business are among
the items included in business expenses. Sec. 1.162-1(a), Income
Tax Regs. Section 1.162-3, Income Tax Regs., provides that
taxpayers carrying materials and supplies on hand should include
in expenses the charge for materials and supplies only in the
amount that they are actually consumed and used in operation
during the taxable year for which the return is made.
Petitioner argues, in the alternative, that, even if
required to capitalize the cost of the garments and dust control
items under section 263, the useful life of the garments and dust
control items was less than 1 year or not substantially in excess
of 1 year and would be fully depreciable in the year placed in
service.
Section 167(a) generally allows as a depreciation deduction
a reasonable allowance for the exhaustion, wear and tear, and
obsolescence of property used in a trade or business. Any
reasonable and consistently applied method of computing
depreciation may be used or continued in use. Sec.
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