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damages paid in order to be released from an existing
unprofitable arrangement. See also Cassatt v. Commissioner, 137
F.2d 745, 748-749 (3d Cir. 1943), affg. 47 B.T.A. 400 (1942).
Respondent, to the contrary, argues that as a matter of law
the obligation to pay the $2.5 million rollover charge must be
capitalized and amortized over the 5-year term of the Second
Lease. Respondent relies on INDOPCO, Inc. v. Commissioner,
supra, to argue that because the obligation to pay $2.5 million
was incurred not only in terminating the First Lease, but also in
entering into the Second Lease, the $2.5 million obligation is a
cost of obtaining significant future benefits under the Second
Lease and should therefore be capitalized over the term of the
Second Lease.
Respondent further relies on Pig & Whistle Co. v.
Commissioner, 9 B.T.A. 668 (1927), and Phil Gluckstern's, Inc. v.
Commissioner, T.C. Memo. 1956-9, to argue in favor of
capitalizing the rollover charge. These were cases of lessees
who had made lump-sum payments to purchase leaseholds, which they
then amortized over the term of the lease. Thereafter, the lease
in each of these cases was canceled and the parties entered into
another lease on the same property. In both cases the
unamortized cost of the first lease was held not to be deductible
in the year that the first lease was canceled. Rather, because
of the relationship between the successive leases, the
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