Richard L. Smith Vanalco, Inc. v. Commissioner of Internal Revenue

The Commissioner of the Internal Revenue Service (“Commissioner”) disallowed deductions taken by appellant Vanalco, Inc. (“Vanalco”) in 1992 and 1993 for expenses related to replacing the lining of aluminum smelting machines and portions of its facility’s floors. The Commissioner determined that these items were capital expenditures depreciable under 26 U.S.C. § 263 , rather than ordinary and necessary business expenses currently deductible under 26 U.S.C. § 162 (a). The tax court upheld the Commissioner’s determination on Vanalco’s appeal. See Vanalco v. Comm’r, 78 T.C.M. (CCH) 251 (1999) (“Va-nalco I ”). We have jurisdiction over appeals from the tax court pursuant to 26 U.S.C. § 7482 (a), and we affirm.

I. BACKGROUND

A. Vanalco’s Smelting Operations

During 1992 and 1993, Vanalco was in the business of smelting aluminum. Va-nalco operated a smelting facility in Vancouver, Washington, that it purchased in 1987 from ALCOA, which had owned the facility since 1940.

Aluminum is made from bauxite, an ore that contains large amounts of aluminum hydroxide. Bauxite is refined to make aluminum oxide, also known as alumina. Aluminum is produced by use of the chemical process…