                                                              United States Court of Appeals
                                                                       Fifth Circuit
                                                                        F I L E D
                    UNITED STATES COURT OF APPEALS                   September 9, 2003

                           FOR THE FIFTH CIRCUIT                   Charles R. Fulbruge III
                            ____________________                           Clerk

                               No. 03-60273
                             Summary Calendar
                           ____________________

               MICHAEL A. MCGRATH; FRANCES Y. MCGRATH,

                                                    Petitioners-Appellants,

                                    versus

                  COMMISSIONER OF INTERNAL REVENUE,

                                             Respondent-Appellee.
_________________________________________________________________

             Appeal from the United States Tax Court
                             (126-99)
_________________________________________________________________

Before BARKSDALE, EMILIO M. GARZA, and DENNIS, Circuit Judges.

PER CURIAM:*

     Petitioners challenge, pro se, the Tax Court decision that

certain expenses, characterized as capital improvements, were not

wholly   deductible   in    1995.     That   year,    pursuant     to    leasing

commercial space, Petitioners were required by the lease to make

substantial and quite fundamental permanent improvements to the

leasehold in order to, inter alia, be able to occupy it.                     The

improvements,    completed     in   1995,    cost    more   than     $111,000.

Concomitantly, the lease called for Petitioners to receive a six-


     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
month rent reduction, valued at approximately $18,000. Petitioners

deducted the entire cost of the improvements on their 1995 tax

return.     The lease was terminated in 1997.

     The IRS agrees that the portion of the expenses corresponding

to the rent reduction was deductible in 1995.             At issue is whether

the remaining $92,000 was deductible then, or whether Petitioners

could     only    take    depreciation       deductions   until   the    lease’s

termination in 1997.

     Generally, lessees must depreciate improvements they make to

the leasehold.           See 26 C.F.R. §§ 1.162-11(b) and 1.167(a)-4.

Petitioners contend, however, the improvements were deductible as

            other payments required to be made as a
            condition to the continued use or possession,
            for purposes of the trade or business, of
            property to which the taxpayer has not taken
            or is not taking title or in which he has no
            equity.

I.R.C. § 162(a)(3) (emphasis added).

     We review such contentions de novo.              E.g., Byram v. United

States, 705 F.2d 1418, 1421-23 (5th Cir. 1983).              “Other payments”

do not include capital improvements a lessee makes to a lessor’s

property.        Duffy v. Central R.R. Co., 268 U.S. 55, 64 (1925);

McGrath v. Comm’r of Internal Revenue, 84 T.C.M. (CCH) 310 (2002).

                                                                        DENIED




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