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capitalized as a cost of acquiring the Second Lease. Our
conclusion is informed by the integrated nature of the agreements
and transactions by which the First Lease was terminated and the
Second Lease was entered into and by the reasoning of Pig &
Whistle Co. v. Commissioner, supra, and Phil Gluckstern's, Inc.
v. Commissioner, supra.
Petitioner's initiation of the Second Lease and termination
of the First Lease were integrated events that should not be
viewed in isolation. The Agreement states that the termination
of the First Lease is expressly conditioned on petitioner's
initiation of a new lease with ICC. In an affidavit attached
to petitioner's motion for partial summary judgment, James R.
Egan, vice president of U.S. Bancorp, stated: “In 1990, West One
determined that the 3090 IBM mainframe computer was inadequate
for its needs. West One decided to select a larger capacity
computer and to terminate its 3090 Lease with IBM Credit
Corporation.” Mr. Egan's representations and the fact that the
4(...continued)
obligation, attempts to emphasize the relationship of the
obligation to the First Lease while attempting to isolate the
obligation from the future benefits provided by the Second Lease.
Respondent describes the obligation as a "rollover charge" in
order to emphasize the relationship of the obligation to both the
First Lease and the Second Lease. We find respondent's
characterization of the obligation more appropriate. The
Agreement executed by the parties was termed a "rollover
agreement", not a "termination agreement", and petitioner's
obligation to pay $2.5 million was expressly termed a "rollover
charge", not a "termination fee". We therefore generally refer
to the obligation throughout as the "rollover charge".
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