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expenditures. Sec. 263(a); INDOPCO, Inc. v. Commissioner, supra
at 83.
“A particular cost, no matter what its type, may be
deductible in one context but may be required to be capitalized
in another context.” Am. Stores Co. & Subs. v. Commissioner,
supra at 469. An expense that might otherwise qualify as
currently deductible must be capitalized when it: (1) Creates or
enhances a separate and distinct asset; (2) produces a
significant future benefit; or (3) is incurred in connection with
the acquisition of a capital asset. Lychuk v. Commissioner, 116
T.C. 374, 385-386 (2001) (and cases cited therein).
Capital expenditures are not limited to the actual price
that the buyer pays to the seller for the asset but include the
payment of legal, brokerage, accounting, appraisal, and other
ancillary expenses related to the asset’s acquisition. Id. at
389. Whether legal costs are incurred in connection with the
acquisition of a capital asset depends on whether the origin of
the claim litigated is the process of the acquisition itself.
Woodward v. Commissioner, 397 U.S. 572, 577-578 (1970); Berry
Petroleum Co. & Subs. v. Commissioner, 104 T.C. 584, 618-619
(1995), affd. without published opinion 142 F.3d 442 (9th Cir.
1998). Under the origin of the claim test, the nature of the
transaction out of which the expenditure in controversy arose
governs whether the item is a deductible expense or a capital
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