The big-box consumer-electronics retailer, which was at the bottom of the totem pole last year with capital expenditures
of roughly 1.
The IRS has recognized that "recurring costs incurred by a going concern in expanding its business generally are deductible, but the costs of entering a new line of business are capital expenditures
Under the long-term benefit analysis of Indopco, however, hostile defense fees would not constitute capital expenditures
23 (1999), the Tax Court, for the first time, specifically addressed whether a one-year rule exists for determining whether a payment is a capital expenditure
or a deductible expense.
In disallowing all takeover-related expenses, INDOPCO addressed whether the costs were deductible as ordinary business expenses or whether they were capital expenditures
In applying a "long-term benefit" test, the court concluded that the costs represented nondeductible capital expenditures
The Service held (and the Eleventh Circuit agreed) that the expenses were capital expenditures
incurred incident to the acquisition of a capital asset.
The resulting capital expenditures
will increase production costs-which cannot be fully passed on to customers and will lead to a decline in future earnings.
The distinction between deductible repairs and capital costs is based on the purpose of the expenditures: the purpose of a repair is to restore property back to an efficient operating condition, while the purpose of capital expenditures
is to extend the property's life, increase its value or make it adaptable to a new use.
The Tax Court repudiated Five Star with this reasoning: Fundamentally, a buyback is an acquisition of a capital asset (the corporation's stock), and costs incurred in the acquisition of a capital asset are nondeductible capital expenditures