- 18 -
Similarly in the case at hand, there is an interrelationship
and continuity of rights between the two leases that require the
rollover charge to be treated as a cost of acquiring the Second
Lease. The cancellation of the First Lease was expressly
conditioned on the execution of the Second Lease. The parties to
the Second Lease were the same as the parties to the First Lease.
While, as petitioner point outs, the properties covered by the
two leases are not identical, they are similar in that both are
mainframe computers used for the same purposes in petitioner's
business. Cf. sec. 1031(a); Redwing Carriers, Inc. v. Tomlinson,
399 F.2d 652 (5th Cir. 1968); Coastal Terminals, Inc. v. United
States, 320 F.2d 333 (4th Cir. 1963); sec. 1.1031(a)-1(c), Income
Tax Regs.; Rev. Rul. 61-119, 1961-1 C.B. 395.
An analogous case that helps to illustrate the distinction
between the two extremes is Great W. Power Co. v. Commissioner,
297 U.S. 543, 546-547 (1936). In that case, the taxpayer called
a bond issue at 105 plus accrued interest; under the terms of the
bond issue the bondholders had the option to receive series B
bonds of equal face value, plus 5 percent in cash. At issue was
the treatment of unamortized discount and expenses associated
with the first issue of bonds as well as the premiums and other
expenses associated with the call of the first issue and the
exchange. The Commissioner having conceded that the current
deduction of those amounts was proper to the extent attributable
to the bonds redeemed for cash, the Supreme Court held that the
Page: 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