Martin J. And Margaret M. Zaninovich and Vincent M. And Dorothy F. Zaninovich v. Commissioner of Internal Revenue

This case presents the issue of whether a rental payment by a cash basis taxpayer for a lease year that extended eleven months beyond the year of payment is fully deductible in the year of payment as an ordinary and necessary business expense or must be deducted on a prorated basis as a capital expenditure. We hold that the payment in this case was fully deductible in the year of payment.

Petitioners Martin J. and Margaret M. Zaninovich, husband and wife, and Vincent M. and Dorothy F. Zaninovich, also husband and wife, filed their federal income tax returns on a cash basis for the taxable year 1973. Martin and Vincent Zaninovich are partners in a farming business in the San Joaquin Valley in California. The partnership used the cash basis method of accounting.

On October 3, 1973, the partnership entered into a lease of farm land for the period December 1, 1973 to November 30, 1993. Yearly rent of $27,000 for the period running from December 1 to November 30 was payable on December 20 of each lease year. On December 20, 1973, the partnership paid $27,000 rent for the lease year running from December 1, 1973 to November 30,1974. The partnership deducted this entire amount on its…