## Facts

- Midland Empire Packing Company operated a meat-packing plant near Billings, Montana, using basement rooms to cure and store meat and hides.
- The basement’s original concrete walls and floors were not sealed against seepage, and water seepage had occurred at times.
- A nearby oil refinery later caused oil to seep into Midland’s well water and through the basement’s concrete, creating odors and a fire hazard.
- Federal meat inspectors required Midland to oilproof the basement and stop using contaminated well water or cease operations.
- Midland lined the basement walls and floors with additional concrete to keep oil out and continue using the basement in the same manner as before.
- Midland deducted approximately $4,868.81 as an “ordinary and necessary” business expense under § 23(a).
- The Commissioner disallowed the deduction, treating the expenditure as a capital outlay, and asserted deficiencies in declared value excess profits tax and excess profits tax for the fiscal year ending November 30, 1943.

## Issues

1. Whether the cost to line the basement walls and floor to prevent oil seepage was a deductible repair and “ordinary and necessary” business expense under § 23(a).
2. Whether the cost was a capital expenditure because it constituted an improvement, replacement, or betterment to be recovered through capitalization and depreciation.

## Decision

- The Tax Court held the expenditure was essentially a repair and deductible as an ordinary and necessary business expense under § 23(a).
- The court concluded the work was undertaken to keep the plant usable for its existing operations, not to expand, change, or upgrade the facility for new or larger-scale uses.
- Because the expenditure was allowed as a current deduction, the court did not reach the taxpayer’s alternative loss argument under § 23(f).

## Legal Principles

- A deductible repair is an expenditure made to keep property in an ordinarily efficient operating condition and that does not materially add value or appreciably prolong the property’s life.
- A capital expenditure generally includes replacements, alterations, improvements, or additions that prolong life, increase value, or adapt property to a different use.
- An expense may be “ordinary” even if unusual for the particular taxpayer; “ordinary” can mean an appropriate and normal response for a business in that situation and line of work.
- Substantial structural work may still be treated as a repair when its function is protective and restorative—preserving existing use in response to external conditions—rather than improving or adapting the property.

## Conclusion

The Tax Court treated Midland’s basement oilproofing as a current repair deduction because it was a protective measure required to continue normal operations and did not materially increase value, extend useful life, or adapt the plant to a new or different use.


Midland Empire Packing Co. v. Commissioner, 14 T.C. 635 (1950)