FedEx Corp. v. United States
United States District Court for the Western District of Tennessee
291 F. Supp. 2d 699 (2003)
- Written by Angela Patrick, JD
Facts
As part of its business, FedEx Corporation (plaintiff) owned numerous airplanes. Airplane engines could be purchased separately from the rest of the airplane, but FedEx and the rest of the industry typically treated airplanes and their engines as a single unit. FedEx also generally expected each engine to last as long as the airplane it came with. However, airplane engines required regular maintenance and repair services. To be serviced, an airplane engine had to be removed from the airplane. For two years, FedEx spent between $50,000 and $1 million to service each airplane engine. On its income taxes for those two years, FedEx characterized its engine-maintenance costs as tax-deductible business expenses. The Internal Revenue Service declared that (1) engine repairs and maintenance prolonged an engine’s lifespan and (2) therefore engine-maintenance costs were capitalized costs, not deductible business expenses. Under this determination, FedEx paid $70 million in additional taxes and interest. FedEx sued the United States government (defendant) for a refund, arguing that the engine-maintenance costs should be treated as business expenses, not capitalized costs.
Rule of Law
Issue
Holding and Reasoning (Mays, J.)
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