Fall River Gas Appliance Co. v. Commissioner - 349 F.2d 515 (1st Cir. 1965)

Rule:

A capital expenditure is one that secures an advantage to a taxpayer which has a life of more than one year and a taxpayer must acquire something of permanent use or value in his business. It is not necessary that a taxpayer acquire ownership in a new asset, but merely that he may reasonably anticipate a gain that is more or less permanent.

Facts:

Petitioners, a natural gas seller and distributor, deducted leased appliance installation costs from income tax as ordinary and necessary business expenses. Costs were deducted because equipment removal costs prevented recoupment of most of the original installation cost. The tax court held that the expenditures were to be capitalized and depreciated over a term rather than deducted as ordinary and necessary business expenses. Petitioners sought review of the decision. 

Issue:

Were the costs in question capital expenses that should have been capitalized and depreciated rather than deducted as ordinary business expenses?  

Answer:

Yes.

Conclusion:

The appellate court affirmed, holding that the decision was not clearly erroneous. The appellate court stated that since the labor expenditures were made in anticipation of a continuing economic benefit, evidenced by rental income over the period of equipment leases, the circumstances were indicative of capital expenses.