- 12 - 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, thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011