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remaining amounts had to be capitalized and amortized over the
life of the new bonds, just as we hold the full amount of the
rollover charge must be capitalized and amortized over the term
of the Second Lease.
There is no ground for concluding that the rollover charge
is currently deductible in full or for making an allocation under
which a portion of the charge would be currently deducted as
attributable to the termination of the First Lease and a portion
capitalized and amortized over the Second Lease. Although the
apparent paradox--arising from the likelihood that the charge
would have been higher if petitioner had not entered into the
Second Lease with ICC--gives us pause, any doubts are resolved by
the advantage petitioner obtained, by entering into the Second
Lease, of being able to finance the charge over the term of the
Second Lease.
In sum, we hold that petitioner's obligation to pay the
rollover charge is a capital expenditure that is not currently
deductible and must be amortized over the 5-year term of the
Second Lease. Respondent has conceded that petitioner, as an
accrual basis taxpayer, had accrued a 1-month liability for the
rollover charge on December 1, 1990. As we construe respondent's
concession, petitioner is entitled to an amortization deduction
of $53,775 for the year 1990, equal to the first installment,
which accrued in that year, of the obligation to pay the $2.5
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