In 1950, to settle an adjacent landowner’s lawsuit, Mt. Morris Drive-In Theatre Co. (MMDT) (plaintiff) built a drainage system on its property, thereby reducing harmful runoff onto the adjacent land. MMDT could have foreseen and corrected the runoff in 1947, when MMDT acquired its property and built its theater. MMDT claimed depreciation deductions from its taxable income on account of the drainage system’s 1950 depreciation. MMDT claimed that its depreciation costs were ordinary and necessary business expenses to settle the lawsuit. MMDT also claimed that its depreciation costs were a deductible business loss. The commissioner of internal revenue (commissioner) (defendant) disallowed the deduction, and MMDT petitioned the tax court for a redetermination.