United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS September 9, 2003
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
____________________ Clerk
No. 03-60273
Summary Calendar
____________________
MICHAEL A. MCGRATH; FRANCES Y. MCGRATH,
Petitioners-Appellants,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
_________________________________________________________________
Appeal from the United States Tax Court
(126-99)
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Before BARKSDALE, EMILIO M. GARZA, and DENNIS, Circuit Judges.
PER CURIAM:*
Petitioners challenge, pro se, the Tax Court decision that
certain expenses, characterized as capital improvements, were not
wholly deductible in 1995. That year, pursuant to leasing
commercial space, Petitioners were required by the lease to make
substantial and quite fundamental permanent improvements to the
leasehold in order to, inter alia, be able to occupy it. The
improvements, completed in 1995, cost more than $111,000.
Concomitantly, the lease called for Petitioners to receive a six-
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
month rent reduction, valued at approximately $18,000. Petitioners
deducted the entire cost of the improvements on their 1995 tax
return. The lease was terminated in 1997.
The IRS agrees that the portion of the expenses corresponding
to the rent reduction was deductible in 1995. At issue is whether
the remaining $92,000 was deductible then, or whether Petitioners
could only take depreciation deductions until the lease’s
termination in 1997.
Generally, lessees must depreciate improvements they make to
the leasehold. See 26 C.F.R. §§ 1.162-11(b) and 1.167(a)-4.
Petitioners contend, however, the improvements were deductible as
other payments required to be made as a
condition to the continued use or possession,
for purposes of the trade or business, of
property to which the taxpayer has not taken
or is not taking title or in which he has no
equity.
I.R.C. § 162(a)(3) (emphasis added).
We review such contentions de novo. E.g., Byram v. United
States, 705 F.2d 1418, 1421-23 (5th Cir. 1983). “Other payments”
do not include capital improvements a lessee makes to a lessor’s
property. Duffy v. Central R.R. Co., 268 U.S. 55, 64 (1925);
McGrath v. Comm’r of Internal Revenue, 84 T.C.M. (CCH) 310 (2002).
DENIED
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