Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-85

1969-1 C.B. 49

Sec. 162

IRS Headnote

Voluntary payments by merchants to a city for the acquisition, paving, and lighting of land that is adjacent to the business district and that will be restricted to use as a customer parking lot for a 10-year period are amortizable business expenses.

Full Text

Rev. Rul. 69-85

Advice has been requested whether voluntary payments made by merchants to a city, to be applied toward the cost of acquiring, paving, and lighting land adjacent to the business district for use as a public parking lot, are deductible as business expenses under section 162 of the Internal Revenue Code of 1954.

Certain merchants, both owners and tenants, entered into an agreement with the city in which they are located to pay half the cost of a public parking lot to be maintained and owned by the city. Under the agreement, the amount paid by each merchant was determined on the basis of the estimated benefit to be received by each merchant. Specifically, the amount paid by the merchants located on the same side of the street as the parking lot was three times the rate, per front foot, paid by the merchants on the opposite side of the street. In consideration of the merchant's payments, the city restricted the use of the lot for 10 years to parking for customers of the adjacent business district in which the merchants are located. If the city decides to sell or make other use of the lot before the expiration of the 10-year period, it is obligated to establish a comparable and adequate parking lot in a suitable location to serve the same business area.

Section 162(a) of the Code provides, in part, that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

The payments in the instant case were made pursuant to an agreement under which the city was obligated to provide a public parking lot for the use of the merchants' customers for a 10-year period.

Accordingly, the payments made by the merchants to the city for the acquisition, paving, and lighting of the public parking lot are business expenditures incurred in the ordinary course of trade or business with business benefits extending substantially beyond the taxable year. Since the facts show that the restricted use of the parking lot does not extend beyond the effective 10-year period of the agreement, the period for amortization of the expenditures by the merchants will not extend beyond the end of such 10-year period. Thus, in the case of a property owner the amortization period will be 10 years. In the case of a tenant the amortization period is a question of fact depending on the circumstances of each case.