FedEx v. Commissioner: the continuing debate over cyclical maintenance costs

Tax Executive, The,  Nov-Dec, 2003  by James L. Atkinson

Tags: Federal Express

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(5) 4 B.T.A. 103 (1926).

(6) Illinois Merchants, 4 B.T.A at 106.

(7) See, e.g., Jacks v. Commissioner, T.C. Memo 1988-237 (costs of installing a rebuilt engine into construction equipment did more than keep the asset in an efficient operating condition; life of asset was significantly extended); Rev. Rul. 88-57, 1988-2 C.B. 36 (cost of rebuilding freight cars nearing the end of their useful lives was incurred to put the assets into a sound operating condition rather than to keep them in that condition).

(8) Libby & Blouin Ltd. v. Commissioner, 4 B.T.A. 910 (1926), acq. VI-I C.B. 4 (costs to replace all tubing in a larger machine was a deductible repair).

(9) Electric Energy, Inc. v. United States, 13 Cl. Ct. 644 (1987) (costs of upgrading tubing in "economizers" attached to six power plant boilers were capital expenditures where the economizers rather than the boilers were the relevant unit of property); Denver & Rio Grande Western R.R. v. Commissioner, 279 F.2d 368 (10th Cir. 1960), aff'g 32 T.C. 43 (1959), acq. 1959-2 C.B. 4 (costs to replace many of the floor planks and stringers of a viaduct were capital expenditures where doing so was more than a mere "patch" or repair).

(10) 98 F.3d 1359 (Fed. Cir. 1996).

(11) See also Teitelbaum v. Commissioner, 294 F.2d 541 (7th Cir. 1961), aff'g T.C. Memo 1960-11 (cost of converting electricity in building from D.C. to A.C. was a capital expenditure despite the fact that it was compelled by a Chicago city ordinance); Woolrich Woolen Mills v. United States, 289 F.2d 444 (3d Cir. 1961), rev'g 178 F. Supp. 875 (M.D. Pa. 1960) (cost of building a filtration plant must be capitalized even though it was only built because of state anti-pollution law); RKO Theatres, Inc. v. United States, 163 F. Supp. 598, 602 (Ct. Cl. 1958) (extensive structural changes made to theater to comply with new fire code had to be capitalized, notwithstanding that complying with a governmental order is an ordinary and necessary reaction of a business owner); L&L Marine Service, Inc. v. Commissioner, T.C. Memo 1987-428 (work performed on barge that was necessary to allow it to continue to qualify for sea duty was a deductible repair).

(12) United States v. Wehrli, 400 F.2d 686 (10th Cir. 1968) (capitalization required where significant structural changes and improvements made to building).

(13) See Moss v. Commissioner, 831 F.2d 833 (9th Cir. 1987), rev'g T.C. Memo 1986-128 (mere existence of a written plan is not sufficient to trigger capitalization; is just sound business practice); Rev. Rul. 2001-4, 2001-1 C.B. 295 (existence of written plan alone does not require capitalization)

(14) Compare Moss v. Commissioner, 831 F.2d 833 (9th Cir. 1987) (repainting and wallpapering hotel in need of refurbishment was not part of an overall plan of rehabilitation notwithstanding taxpayer also replaced furniture, carpet, and window treatments at same time) with Norwest Corp. v. Commissioner, 108 T.C. 265 (1997) (asbestos removal costs capitalized where were required by and done in connection with the rehabilitation of the building).