- 16 -
503 U.S. 79, 86 (1992) (quoting Deputy v. du Pont, 308 U.S. 488,
496 (1940)). Petitioners bear the burden of establishing their
right to deduct the disputed expenses. Id. at 84, 86; Welch v.
Helvering, 290 U.S. 111, 114-116 (1933); A.E. Staley
Manufacturing Co. & Subs. v. Commissioner, 119 F.3d 482, 486 (7th
Cir. 1997), revg. and remanding 105 T.C. 166 (1995).
Under the current law on capitalization, an expenditure may
be deductible in one setting but capitalizable in a different
setting. For example, in Commissioner v. Idaho Power Co., 418
U.S. 1, 13 (1974), the Supreme Court observed the following as to
wages paid by a taxpayer in its trade or business:
Of course, reasonable wages paid in the carrying on of
a trade or business qualify as a deduction from gross
income. * * * But when wages are paid in connection
with the construction or acquisition of a capital
asset, they must be capitalized and are then entitled
to be amortized over the life of the capital asset so
acquired. * * *
Thus, when an expense creates a separate and distinct asset, it
usually must be capitalized. Commissioner v. Lincoln Sav. & Loan
Association, 403 U.S. 345 (1971); FMR Corp. & Subs. v.
Commissioner, 110 T.C. 402, 417 (1998); Iowa-Des Moines Natl.
Bank v. Commissioner, 68 T.C. 872, 878, (1977), affd. 592 F.2d
433 (8th Cir. 1979). When an expense does not create such an
asset, the most critical factors to consider are the period of
time over which the taxpayer will derive a benefit from the
expense and the significance to the taxpayer of that benefit.
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