-31-
entire project required close coordination of the asbestos removal
and remodeling work.
Clearly, the purpose of removing the asbestos-containing
materials was first and foremost to effectuate the remodeling and
renovation of the building. Secondarily, petitioner intended to
eliminate health risks posed by the presence of asbestos15 and to
minimize the potential liability for damages arising from injuries
to employees and customers.
In sum, based on our analysis of all the facts and
circumstances, we hold that the costs of removing the asbestos-
containing materials must be capitalized because they were part of
a general plan of rehabilitation and renovation that improved the
Douglas Street building.
Issue II. Brazilian Debt-Equity Conversion
The second issue is whether petitioner realized a loss on a
1987 Brazilian debt-equity conversion.16 According to petitioner,
the debt-equity conversion should be viewed under the step
transaction doctrine as an exchange of petitioner's blocked deposits
at the Central Bank of Brazil (with a basis of $12,577,136) for
15 We reject petitioner's argument regarding sec. 213,
sec. 1.162-10, Income Tax Regs., and Rev. Rul. 79-66, 1979-1 C.B.
114. These provisions and ruling cannot convert the costs of
removing the asbestos-containing materials into current
deductions simply because petitioner's "concerns for the health
and welfare of its employees" partially motivated the removal.
16 A "debt-equity conversion" is also commonly referred to
as a "debt-equity swap".
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