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F. Whether Petitioners May Deduct Soil or Water Conservation
Expenses
A taxpayer generally must capitalize soil and water
conservation expenses. Sec. 263(a)(1)(C). Section 175 provides
an exception to the general rule. Petitioners contend that they
may deduct unspecified amounts in unspecified years for soil and
water conservation expenses under section 175. We disagree.
To deduct soil and water conservation expenses under section
175, taxpayers must: (1) Be engaged in the business of farming,
sec. 175(a); (2) not deduct more than 25 percent of the gross
income derived from farming during the taxable year, sec. 175(b);
(3) make expenditures consistent with a soil conservation plan
approved either by the Soil Conservation Service of the
Department of Agriculture or a comparable State agency, sec.
175(c)(3)(A); see Koramba Farmers & Graziers No. 1 v.
Commissioner, 110 T.C. 445 (1998), affd. 177 F.3d 14 (D.C. Cir.
1999); and (4) adopt a method to deduct soil and water
conservation expenses under section 175 (a) at any time with
consent from the Secretary, or (b) for the first taxable year
ending after August 16, 1954, in which the taxpayer pays or
incurs the soil and water conservation expenses that the taxpayer
seeks to deduct under the approved plan, sec. 175(d)(1) and (2).
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