Capital Expenditures Disputes sometimes arise between the taxpayer and the IRS concerning whether legal costs should be deductible as expenses in the year incurred or be considered as capital expenditures because they relate to defining or perfecting title to business property. Consider two examples from court cases: Example 1 Several years after Rock set up his stone-quarrying business, Smalltown passed an ordinance ban- ning it. Rock spent $1,000 to invalidate the ordinance. Example 2 Now suppose Rock decided to expand his business. He applied to Smalltown for a permit to build an additional crusher. It was denied because an ordinance prohibited the expansion of noncon- forming uses, including quarrying. Rock sued to invalidate the ordinance and won after spending $2,000. He then built the crusher. Indicate whether each example should be deemed

(a) an expense or

(b) a capital expenditure. Briefly explain your answer.