- 13 - unextinguished cost of the first lease was regarded as part of the cost of the second lease that had to be amortized over the term of the second lease. Petitioner argues that terminating the First Lease resulted in an economic loss in the year of termination and that the termination provided no future benefit. Petitioner further argues that Pig & Whistle Co. v. Commissioner, supra, and Phil Gluckstern's, Inc. v. Commissioner, supra, in which the termination fees were capitalized, are distinguishable from the present case. Petitioner maintains that in those cases the lessee canceled a lease only to enter into a second lease of the same property with the same lessor, and that therefore the second lease was in substance a modification of the first lease. In petitioner’s view, the payments made to cancel the old lease were therefore actually made to obtain the modifications whose benefit extended throughout the term of the replacement leases. Because the computers covered by the two leases in the case at hand were different from each other, petitioner maintains that the Second Lease was not merely a modification of the First Lease. The cases brought to our attention by petitioner and respondent occupy opposite ends of a spectrum. At one end is the case where a lessee pays a lessor to terminate a lease and no subsequent lease is entered into between the parties. In such a case the termination fee is clearly deductible in the yearPage: 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