Midland Empire Packing Co. (Midland) (plaintiff) was in business for about 25 years. Midland used its basement to cure and store meats and hides. Occasionally, water seeped into the basement rooms, but the water drained out and did not interfere with Midland’s operations. Eventually, however, oil from a nearby refinery began seeping into Midland’s basement and water wells. Unlike the water seepage, the oil did not drain out. It emitted a strong odor and the fumes created a fire hazard. The Federal meat inspectors advised Midland that it must either stop using the wells and oil-proof the basement, or shut down the plant. Accordingly, Midland oil-proofed the basement by adding concrete lining to the walls and the floor. Midland then deducted this expenditure as a necessary and ordinary business expense.