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incurred, as there is no second lease raising the possibility
that the lessee will realize significant future benefits beyond
the current taxable year as a result of the termination payment.
At the opposite end is the case of a lessee that cancels a lease
and then immediately enters into another lease with the same
lessor, covering the same property. In substance, the first
lease is not canceled but continues in modified form, and any
unrecovered costs of the first lease, or costs incurred to cancel
the first lease, are not currently deductible but rather are
costs of continuing the first lease in modified form.
The case at hand lies between the two extremes. It is not a
case of simply terminating a lease without entering into another
lease. Neither is it a termination of one lease, immediately
followed by entry into a second lease with the same lessor
covering the same property, insofar as the two computers covered
by the two leases are not identical. Along the range between the
extremes presented by petitioner and respondent, we find the case
at hand is both closer to and qualitatively more similar to the
modification of lease case than to the simple termination.
We therefore agree with respondent and conclude that
petitioner's obligation to pay the rollover charge4 must be
4 Respondent and petitioner characterize the $2.5 million
obligation differently. Petitioner describes the obligation as a
"termination fee", while respondent describes it as a "rollover
charge". Petitioner, through its characterization of the
(continued...)
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