The world's largest retailer's
capital expenditures for 2004 accounted for 3.
The IRS argued that the work was a
capital expenditure to be amortized over the remaining lease term; the taxpayer contended the repair costs were deductible under Sec.
In INDOPCO, the Supreme Court supplied limited guidance regarding the distinction between
capital expenditures and currently deductible expenses: the Court said the future benefit of an expenditure must be more than "incidental.
On the other hand, the Tax Court found that FPL's accounting method was to treat certain repairs as
capital expenditures on its returns in accordance with its regulatory reporting method.
If an otherwise deductible repair is part of an overall pattern of rehabilitation, the entire cost may be considered a
capital expenditure.
509, 519-20 (1955) (taxpayer could allocate legal fees between business expenses and
capital expenditures in suit for both an accounting of profit and clear and free title to oil properties), aff'd, 238 F.
The one-year rule serves as a guide in distinguishing between
capital expenditures and deductible expenses, regardless of which accounting method a taxpayer uses.
In a case of first impression, the Tax Court held costs incurred by a target company in a friendly merger were nondeductible
capital expenditures [National Starch and Chemical Corporation v.
The IRS's principal contention was that the takeover-related expenses constituted nondeductible
capital expenditures.
263(a)-2 provides examples of
capital expenditures and includes, among others, the cost of acquiring property with a useful life beyond the tax year.
