SECTION 2. BACKGROUND — Internal Revenue Bulletin 1997-1

.01 Section 162(a) allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

.02 Section 263 generally prohibits deductions for capital expenditures. Section 263(a)(1) provides that no deduction is allowed for any amount paid out for permanent improvements or betterments made to increase the value of any

property or estate. Under § 263(a)(2), no deduction is allowed for any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.

.03 Rev. Proc. 97–1, 1997–1 I.R.B. 11 (Jan. 6, 1997), provides procedures under which the Service issues letter rulings, determination letters, and information letters on specific issues. Section 2.01 of Rev. Proc. 97–1 defines a ‘‘letter ruling’’ as a written statement issued to a taxpayer by the national office that interprets and applies the tax laws to the taxpayer’s specific set of facts. Ordinarily, the national office issues letter rulings on income tax issues only on prospective transactions or completed transactions if the letter ruling request is submitted before the return is filed for the year in which the transaction was completed. All references to Rev. Proc. 97–1 in this revenue procedure include Rev. Proc. 97–1’s successors.

.04 Rev. Proc. 97–2, 1997–1 I.R.B. 64 (Jan. 6, 1997), provides procedures under which the national office issues technical advice to a district director or a chief, appeals office. Section 2 of Rev. Proc. 97–2 defines ‘‘technical advice’’ as advice or guidance in the form of a memorandum furnished by the national office upon the request of a district director or a chief, appeals office, submitted in accordance with Rev. Proc. 97–2 in response to any technical or procedural question that develops during a proceeding on the interpretation and proper application of tax law, tax treaties, regulations, revenue rulings, notices, or other precedents published by the national office, to a specific set of facts. All references to Rev. Proc. 97–2 in this revenue procedure include Rev. Proc. 97–2’s successors.