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success in only one circuit and has not met with success in this
Court, the Court of Appeals for the Second Circuit, and the
Supreme Court.14
Petitioner attempts to bolster its argument by referencing
several cases where transactions were split or bifurcated to
permit differing results with respect to each portion of the
transaction. With one exception,15 the courts have not permitted
a current deduction to terminate a burdensome lease where the
lessee purchased the leased asset. There are cases permitting a
current deduction for the cost of terminating a burdensome lease
or contract obligation, but those cases do not involve the
13(...continued)
because of the value of the stream of income attributable to the
lease. In the factual setting of this case, the fair market
value of the vessel (as opposed to the value without considering
the existing lease) included the stream of rental income.
Accordingly a willing seller would not have ignored the value
attributable to the use of the vessel, especially where the
lessee was obligated to pay for that use, irrespective of whether
the lessee used the vessel. When petitioner acquired the vessel,
it acquired the physical asset and the right to its use.
Petitioner in attempting to attribute the majority of the
acquisition cost to an expense for canceling the lease, ignores
its ability to use or lease the vessel. Accordingly, it is
difficult to reconcile petitioner’s approach to value.
14 To some extent the case law that predated the enactment
of sec. 167(c)(2) is instructive in interpreting the statute.
The very approach suggested by petitioner has been thoroughly
considered by this and other courts.
15 The exception is to be found in Cleveland Allerton Hotel,
Inc. v. Commissioner, 166 F.2d 805 (6th Cir. 1948), revg. a
Memorandum Opinion of this Court dated May 7, 1947, which is
discussed in detail later in this opinion.
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