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important in determining whether the appropriate tax treatment is
a current deduction or a capital expenditure. INDOPCO, Inc. v.
Commissioner, supra at 87-88 (quoting United States v.
Mississippi Chem. Corp., 405 U.S. 298, 310 (1972) (expense that
“`is of value in more than one taxable year’” is a nondeductible
capital expenditure); Central Tex. Sav. & Loan Association v.
United States, 731 F.2d 1181, 1183 (5th Cir. 1984) (“`While the
period of the benefits may not be controlling in all cases, it
nonetheless remains a prominent, if not predominant,
characteristic of a capital item.’”)); see also FMR Corp. &
Subs. v. Commissioner, 110 T.C. 402 (1998).
Petitioner argues that as a matter of law it is entitled to
deduct the $2.5 million obligation in the year incurred as an
expense of terminating the First Lease. Petitioner relies on
Rev. Rul. 69-511, 1969-2 C.B. 24; Hall & Ruckel, Inc. v.
Commissioner, a Memorandum Opinion of this Court dated Dec. 7,
1942; C. Ludwig Baumann & Co. v. Commissioner, a Memorandum
Opinion of this Court dated May 28, 1943; and Denholm & McKay Co.
v. Commissioner, 2 B.T.A. 444 (1925), to argue that the law is
well established that a payment by a lessee to a lessor in order
to terminate a lease is an ordinary and necessary business
expense that is deductible under section 162. The rationale
underlying these holdings is that payments to terminate a lease
are not made to produce future income but are costs incurred and
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