MT. MORRIS DRIVE-IN THEATRE CO. V. COMMISSIONER
25 T.C. 272 (1955)
NATURE OF THE CASE: P challenged a determination by IRS (D) of a deficiency in Theatre's
(P) income and excess profits tax for 1950 in the amount of $3,150.13.
FACTS: P purchased 13 acres of farm land and proceeded to construct a drive-in or outdoor
theatre. The slope of the land was such that the natural drainage of water was from the
southerly line to the northerly boundary of the property and thence onto the adjacent land,
owned by Nickolas, which was used both for farming and as a trailer park. P removed the
covering vegetation from the land, slightly increased the grade, and built aisles or ramps.
Rain water falling upon it now drained with an increased flow into and upon the adjacent
property of the Nickolas. This result should reasonably have been anticipated by P at the
time when the construction work was done. Nickolas filed a suit against the P. The
settlement agreement provided for the construction by P of a drainage system. It cost P
$8,224, which amount was paid in 1950. P claimed a deduction of $822.40 for depreciation of
the drainage system. D disallowed without itemization $5,514.60 of a total depreciation
expense deduction of $19,326.41 claimed by P. P asserted that the entire amount spent to
construct the drainage system was fully deductible in 1950 as an ordinary and necessary
business expense incurred in the settlement of a lawsuit, or, in the alternative, as a loss,
and claimed a refund of part of the $10,591.56 of income and excess profits tax paid by it
for that year. D claimed it was a capital expenditure.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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