STARR'S ESTATE V. COMMISSIONER
274 F.2d 294 (9th Cir. 1959)
NATURE OF THE CASE: This was a dispute over a deduction associated with lease payments.
Starr's (P) appealed a decision of the Tax Court, sustaining the determination of
Commissioner of Internal Revenue disallowing deduction of annual payments as trade or
business rental expense under Internal Revenue Code 23(a),
FACTS: Starr's (P) plant installed a fire sprinkler system. P did this under a five-year
lease with annual payments of $1,240. The lease agreement called for the five years of
payments but in paragraph 28 of that agreement there was a renewal provision that after the
five years P could renew the agreement at a rental rate of $32 per year. If P did not renew,
then the lessor was granted the right for the following six months to remove the system. The
contract was silent as to the 11th year. The Tax Court held that the lease payments were
capital expenditures and only allowed depreciation of $269.60 per each year. Starr's estate,
appealed that decision.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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