- 15 -
As to the question of substantiation, the Court finds on
this record that petitioners substantiated labor expenses of
$60,096 for 1995, $17,406 for 1996, and $41,960 for 1997.
Therefore, in addition to the labor expenses respondent allowed
for each year in the notice of deficiency, the Court finds that
petitioners substantiated labor expenses of $11,624 for 1995,
$3,387 for 1996, and $21,355 for 1997. The Court next considers
whether these additional labor expenses were related to
construction of the Mach Buster airplane, in which event such
expenses would be capitalized, or whether these expenses were
incurred in connection with the air racing activities.
Section 263(a)(1) provides generally that no deduction shall
be allowed for "Any amount paid out for new buildings or for
permanent improvements or betterments made to increase the value
of any property or estate." The Treasury regulations interpret
this text by listing the following item as an example of a
capital expenditure: "The cost of acquisition, construction, or
erection of buildings, machinery and equipment, furniture and
fixtures, and similar property having a useful life substantially
beyond the taxable year." Sec. 1.263(a)-2(a), Income Tax Regs.
Whether an expense is deductible under section 162(a) or
must be capitalized under section 263(a)(1) is a factual
determination for which there is no controlling rule. "[E]ach
case 'turns on its special facts'", and "the cases sometimes
appear difficult to harmonize." INDOPCO, Inc. v. Commissioner,
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011