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WASHINGTON (October 20, 2000) – In a case tried on behalf of Ingram Industries, Inc. by Sutherland attorneys, the United States Tax Court issued its opinion on October 18, 2000 awarding Ingram a complete victory.
The issue in the case concerned whether Ingram was entitled to deduct the cost of certain recurring towboat engine maintenance procedures, or should be forced to capitalize such amounts as the IRS contended. IRS agents and attorneys have recently been pursuing the question of the current deductibility of cyclical maintenance costs with some vigor, and they have been targeting many industries, including, among others, the towboat, airline, trucking, and railroad industries.
In its opinion, the Tax Court made it quite clear that the fact that a maintenance procedure is performed every few years does not answer the question of whether a current deduction is allowed. Instead, because the taxpayer proved that the maintenance at issue was performed merely to keep the towboat engines in good operating condition, the costs of the procedures were properly deducted.
Although the IRS lost this case, it will no doubt continue its quest to require the capitalization of cyclical maintenance costs. The holding in this case thus may have broad implications for the many other companies currently dealing with similar issues.