Faura v. Commissioner

73 T.C. 849, 1980 U.S. Tax Ct. LEXIS 189
CourtUnited States Tax Court
DecidedFebruary 19, 1980
DocketDocket No. 10041-77
StatusPublished
Cited by11 cases

This text of 73 T.C. 849 (Faura v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Faura v. Commissioner, 73 T.C. 849, 1980 U.S. Tax Ct. LEXIS 189 (tax 1980).

Opinions

Dawson, Judge:

Respondent determined a deficiency of $1,946 in petitioners’ Federal income tax for the year 1974. Concessions have been made by the parties. The only issue presented for decision is whether petitioner Fernando Faura, an author, may currently deduct under section 1621 certain expenses paid or incurred while writing two books, or whether such expenses should be capitalized pursuant to section 263.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulations of facts and attached exhibits are incorporated herein by this reference.

Fernando Faura (hereinafter petitioner) and Rita Faura maintained their legal residence in San Fernando, Calif., at the time they filed their petition in this case. Petitioner and his wife timely filed their joint Federal income tax return for the taxable year 1974.

Petitioner was in the trade or business of being an author in 1974 when he paid or incurred the following expenses in connection with the writing of two manuscripts:

Office expenses
(1) Office rent . $672.00
(2) Mail . 20.00
(3) Gifts1 . 30.00
(4) Printing . 58.95
(5) Telephone . 180.00
(6) Supplies . 50.00
(7) Answering service . 25.00
(8) Post office box rental . 18.00
(9) Legal fees . 40.00
(10) Subscriptions . 40.00
(11) Water and power . 57.00
(12) Gas . 55.00
(13) Architectural . 125.00
(14) Research . 38.95
(15) Travel1 . 571.38
(16) Miscellaneous office expense . 40.00
(17) Entertainment1 . 1,000.00
Total office expenses . 3,021.28
Transportation expenses
(1) Automobile repair expenses . $231.69
(2) Gasoline . 721.76
(3) Depreciation autos . 780.00
(4) Automobile insurance . 239.59
Total transportation expenses . 1,973.04
Total expenses . 4,994.32

Petitioner has realized no income from the sale of his writings. He had not sold the manuscripts as of the date of the trial, but he was still actively marketing his unprinted books.

Petitioner claimed a deduction for his expenditures in writing the two books as ordinary and necessary business expenses for 1974. Respondent disallowed the claimed deduction on the ground that such costs were capital expenditures.

OPINION

Section 162 provides there shall be allowed as a deduction all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 1.162-6, Income Tax Regs., provides that an individual in a profession may claim as deductions:

the cost of supplies used by him in the practice of his profession, expenses paid or accrued in the operation and repair of an automobile used in making professional calls, dues to professional societies and subscriptions to professional journals, the rent paid or accrued for office rooms, the cost of the fuel, light, water, telephone, etc., used in such offices, and the hire of office assistants. Amounts currently paid or accrued for books, furniture, and professional instruments and equipment, the useful life of which is short, may be deducted.

Section 263, which takes precedence over section 162,2 provides that no deduction shall be allowed for any amount paid out for permanent improvements or betterments made to increase the value of any property. Section 1.263(a)-2, Income Tax Regs., includes as examples of capital expenditures:

(a) The cost of acquisition, construction, or erection of buildings, machinery and equipment, furniture and fixtures, and similar property having a useful life substantially beyond the taxable year.
(b) Amounts expended for securing a copyright and plates, which remain the property of the person making the payments.

Section 461(a) provides that “the amount of any deduction * * * shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income.” Section 1.461-1(a)(1), Income Taxs Regs., provides:

Under the cash receipts and disbursements method of accounting, amounts representing allowable deductions shall, as a general rule, be taken into account for the taxable year in which paid. * * * [If, however] an expenditure results in the creation of an asset having a useful life which extends substantially beyond the close of the taxable year, such an expenditure may not be deductible, or may be deductible only in part, for the taxable year in which made. * * *

Respondent contends that expenses incurred by an author in producing a book constitute nondeductible capital expenditures because they result in the creation of an asset having a useful life extending beyond the taxable year. Under this view, the costs attributable to writing a book establish the author’s basis under section 1012, and are available for future depreciation or amortization under section 167(a). Such a view, respondent argues, derives its support from Commissioner v. Idaho Power Co., 418 U.S. 1 (1974).

In Idaho Power, a public utility company claimed depreciation deductions under section 167(a) on all its transportation equipment, cars, and trucks, including that portion attributable to its use in constructing capital facilities. The Supreme Court, affirming an opinion of this Court, held that the equipment depreciation allocable to the taxpayer’s construction of capital facilities must be capitalized under section 263(a)(1). It said (418 U.S. at 16):

The purpose of §263 is to reflect the basic principle that a capital expenditure may not be deducted from current income. It serves to prevent a taxpayer from utilizing currently a deduction properly attributable, through amortization, to later tax years when the capital asset becomes income producing. * * *

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Encyclopaedia Britannica, Inc. v. Commissioner
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Faura v. Commissioner
73 T.C. 849 (U.S. Tax Court, 1980)

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Bluebook (online)
73 T.C. 849, 1980 U.S. Tax Ct. LEXIS 189, Counsel Stack Legal Research, https://law.counselstack.com/opinion/faura-v-commissioner-tax-1980.