Horace D'Angelo - Page 17

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          incurred during the taxable year, (2) be for carrying on any                
          trade or business, (3) be an expense, (4) be a necessary expense,           
          and (5) be an ordinary expense.  Commissioner v. Lincoln Sav. &             
          Loan Association, 403 U.S. 345, 352 (1971).  The principal                  
          difference between classifying a payment as a deductible expense            
          or a capital expenditure concerns the timing of the taxpayer’s              
          recovery of the cost.  See INDOPCO, Inc. v. Commissioner, 503               
          U.S. 79, 83-84 (1992); Interstate Transit Lines v. Commissioner,            
          319 U.S. 590 (1943); Lychuk v. Commissioner, 116 T.C. 374 (2001);           
          Metrocorp, Inc. v. Commissioner, 116 T.C. 211 (2001).                       
               Just because a particular expense fits within the literal              
          language of section 162, it does not automatically become                   
          deductible.  This is because other sections, such as section 261,           
          except certain payments from the current deductibility                      
          provisions.  INDOPCO, Inc. v. Commissioner, supra at 84.  Section           
          261 states that “no deduction shall in any case be allowed in               
          respect of the items specified in this part”, e.g., Part IX,                
          Items Not Deductible.  Section 263(a)(1), which is contained in             
          Part IX, generally provides that a deduction is not 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."                                                        
               As we recently noted in Lychuk v. Commissioner, supra at               
          386, the Supreme Court’s mandate as to capitalization requires              






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