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Although the Supplement does not expressly so state, it
implies, consistently with the concluding paragraph of the
Rollover Agreement, that if the replacement equipment had not
been financed through ICC, whatever termination charge the
parties had agreed upon would have been immediately due and
payable.
On its 1990 Federal consolidated income tax return,
petitioner claimed a deduction of $793,753 as an expense of
terminating the First Lease. In the statutory notice of
deficiency issued to petitioner on September 20, 1996, respondent
disallowed the deduction and increased petitioner's income for
the 1990 taxable year by $793,753. The explanation of
adjustments section of the notice stated that the termination
charge was a capital expenditure under section 263 because
petitioner entered into a lease with ICC for replacement
equipment, and that, because no payments under the new lease were
made until 1991, no amortization deduction would be allowed for
1990.
In the petition filed December 24, 1996, petitioner alleged
that respondent erred in determining that the termination charge
was a capital expenditure and not an ordinary and necessary
business expense within the meaning of section 162. On
December 15, 1997, petitioner amended its petition, alleging that
the full $2.5 million charge for termination of the First Lease
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