Current Expenses versus Capital Expenditures
i.    162 requires that to be currently deductible an item must be an expense as opposed to a capital expenditure, t/f expenses may be currently deductible under 162, whereas deductions for capital expenditures must be postponed at least partially to future taxable years.
ii.    263 & 263A prohibit a current deduction for capital expenditures even if they are ordinary and necessary and incurred in a trade or business
1.    263(a)(1) & (2) state: capital expenditures include “any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate” and amounts “expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made”; also, the acquisition of “machinery and equipment, furniture and fixtures, and similar property having a useful life substantially beyond the taxable year (1.263(a)-2(a))
a.    e.g., you can’t deduct your new building as a current expense.  You can still deduct it, but you just have to do it much more slowly through depreciation/amortization.
2.    263A provides that capital expenditures include the cost of real or tangible property produced by the taxpayer
iii.    Exs. of hard core current expenses: salaries, copy paper, pencils, FedEx charges, rent, electric bill
iv.    Exs. of hard core capital expenses: GM’s new factory, a new bulldozer, a new crane, a new assembly line, a new computer, a baseball player with a 7-year K – basically anything with a useful life beyond a year.
v.    Two sloppy rules for distinguishing b/t current expenses and capital expenditures:
1.    Does the thing have a useful life substantially longer than the end of the taxable year?   1.263(a)-2(a).
2.    Is the thing you purchased a permanent improvement or betterment designed to increase the value of the property?  (E.g., putting an assembly line in your factory.)
vi.    Problems w/ characterization:
1.    Capital expense v. Capital expenditure
a.    go to 162: if it is an expense, then it is deductible now; if not, go to 262 (personal expenditures): if it is a personal expenses, not deductible – go to 1016 and increase B; if it is not a personal expense, go to 263 and see if it is a capital expenditure
b.    for example: is the replacement of a warehouse roof a repair (deductible as a current expense) or a capital improvement (which must be capitalized and deducted over the life of the asset)?  1.162-4 attempts to answer this question by permitting a current deduction for;
i.    the cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operation condition . . . provided the B of the property is not increased by the amount of such expenditure
ii.    basically, if the expended cost (roof) either materially adds to the value of or substantially prolongs the useful life of the property, it is a capital expenditure
c.    1.263(a)-2(a): “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.”
i.    this is sticky, b/c lawyer’s fees, etc are going to be considered capital expenditures
d.    Commissioner v. Idaho Power (431).  IP is using trucks and bulldozers to build assets that will have useful lives of 40+ years.  IP is depreciating the trucks and ‘dozers over 5 years.  The FG comes in and says that IP should be depreciating the trucks and ‘dozers not over 5 years but, rather, over 40 years.  If you’re using the trucks to build an item with a 40 year useful life, you should depreciate the trucks over 40 years.  Sct. Agrees with FG.
i.    Ascher says this is right: why should we allow them to deduct quickly stuff that is recoverable slowly?