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the First Lease and the entry into the Second Lease. Petitioner
fails to acknowledge that the rollover charge was incurred not
only to terminate the First Lease, but also to get rid of the
inadequate property covered by that lease in order to obtain the
right to use the more adequate property covered by the Second
Lease. While petitioner is correct in maintaining that the law
is well settled that a payment to terminate a lease is generally
deductible in the year incurred, that law does not apply to the
case at hand, where the rollover charge is not merely a payment
to terminate the First Lease, but also a payment that results in
the realization of future benefits over the term of the Second
Lease.
Pig & Whistle Co. v. Commissioner, 9 B.T.A. 668 (1927), and
Phil Gluckstern's, Inc. v. Commissioner, T.C. Memo. 1956-9, which
respondent relies on and petitioner argues are distinguishable,
further support our conclusion that petitioner must capitalize
the amount of its obligation to pay the rollover charge. In both
those cases, lessees entered into second leases covering the same
real property, and in each case the Court stated that the lessor
would not have agreed to the cancellation of the old lease except
for the execution of the new lease. In both cases, the Court
held that, due to the continuity of rights and strong
interrelationship between the two leases, the unextinguished cost
of the first lease was part of the cost of the second lease.
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