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taxpayer argued in this Court that he could deduct
$10,960 of the expenses because they were attributable
to a hearing held by the Federal Communications
Commission on this matter and did not add any value to
the acquired stock. We disagreed with the taxpayer
that any of these amounts were currently deductible.
On appeal, so did the Court of Appeals for the Ninth
Circuit. According to that court: “The expenditures
connected with the acquisition of the broadcast license
were no less capital in character because they did not
themselves contribute additional and specific financial
value to the license being sought. The important fact
is that the expenditures were made for the purpose of
acquiring a capital asset.” * * * [Fn. ref. omitted.]
We noted that the test for capitalization does not hinge on the
amount of value added to property but looks at the nature of the
expense itself. Id. at 414. We concluded that “When the nature
of an expenditure bears a direct relation to the acquisition of a
capital asset * * * the expenditure must be capitalized.” Id.
Petitioners acquired a capital asset. Petitioners
subsequently discovered that they paid more for the asset than it
was worth. Petitioners initiated a lawsuit against MHP and Mr.
Meglin and sought to recover damages on the grounds that
misrepresentations by Mr. Meglin had caused them to pay more than
the hotel was worth. Petitioners and Mr. Meglin eventually
entered into a release and settlement agreement whereby
petitioners’ obligation under the promissory note executed for
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Last modified: May 25, 2011