Rev. Rul. 54-191

Advice is requested relative to the treatment, for Federal income tax purposes, of costs of original construction and of maintenance and repair of earthern farm terraces, in view of the decision in J. H. Collingwood et ux. v. Commissioner , 20 T.C. No. 132, acquiescence, page 4, this Bulletin. In that case the court found as a fact, based of the evidence presented, that construction of the terraces on the taxpayer's farm lands did not increase the value of the lands . It concluded that the cost of their construction was a deductible expense.

The principle announced in the Collingwood case will be followed by the Internal Revenue Service in the disposition of other cases only if the facts are found to be substantially similar to those in that case.

Generally, expenditures by a taxpayer for the construction of earthern terraces on land owned by him are not deductible expenses within the meaning of section 23(a) of the Internal Revenue Code, but are capital expenditures, the deduction of which is prohibited by section 24(a)(2) of the Code. Ordinarily, the construction of earthen terraces for the prevention of soil erosion increases the value of the property on which they are constructed. In the absence of convincing evidence to the contrary, it will be presumed, therefore, that terrace construction of this type is an improvement, the cost of which is properly chargeable to capital account. However, expenses for their maintenance and repair are deductible as ordinary and necessary expenses under section 23(a)(1)(A) of the Code.