Buckland v. United States
Decision Date | 07 May 1946 |
Docket Number | Civil Action No. 1567. |
Court | U.S. District Court — District of Connecticut |
Parties | BUCKLAND v. UNITED STATES et al. |
James W. Cooper, of Gumbart, Corbin, Tyler & Cooper, all of New Haven, Conn., for plaintiff.
Adrian W. Maher, U. S. Atty., and Edward J. Lonergan, Asst. U. S. Atty., both of Hartford, Conn., and George Morris Fay, Sp. Asst. U. S. Atty., of Washington, D. C., for defendants.
The question presented in this case is whether an expenditure in 1941 in the amount of $3,559.62 should be allowed as a deduction from gross income as an ordinary and necessary expense. The applicable sections of the Internal Revenue Code and of the Treasury Regulations are as follows:
26 U.S.C.A. Int. Rev. Code, § 23 (a) (1).
Treasury Regulations 103, promulgated under the Internal Revenue Code:
The expenditure, claimed as a deduction in this case, was for work on a factory building purchased by the taxpayer in May, 1940.
Sixteen months after the purchase, because of water leaking through the walls and roof, it was decided to make whatever expenditure was necessary to place the building in good condition. In probing the extent of the deterioration of the steel window sash, it was determined to be necessary to break out all the old concrete window sills and replace them after repairing, straightening and painting the steel sash.
Except in very minor respects, the building was merely restored to its original condition by a mending of its larger component parts, using materials similar to those originally incorporated in its construction.
No major unit in the structure was wholly replaced, such as the roof, a wall, a floor. About 80% of the expenditure was for labor, about 20% for material. Yet the total expenditure was large, amounting to 35% of the value of the building.
If the work can be considered incidental repairs, it meets the test of Regulations 103 as the Regulations have been interpreted. It "neither materially added to the value of the property nor appreciably prolonged its life" (beyond its original life expectancy) "but kept it in an ordinarily efficient operating condition."
The defendants' contention appears to be that repairs are not incidental if they are so extensive in total as was the case here, and should more properly be capitalized and charged against the reserve for depreciation. This view seems to have some support in the Amsterdam Theatres Corp. case, 1931, 24 B.T.A. 1161, although there may be implicit in the opinion in that case a finding that the work had prolonged the life of the building beyond its original life expectancy, and in Connally Realty Co. v. Commissioner of Internal Revenue, 5 Cir., 1936, 81 F.2d 221, although that case is also perhaps distinguishable as an alteration rather than a restoration of a damaged fabric.
The Tax Court or its predecessor have, in a number of cases, allowed work of substantial cost to be classified as repairs if the property was not placed in better condition or given a longer life expectancy than...
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