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On petitioner’s tax returns, no original issue discount
(OID) was claimed as a deduction relating to the options issued
to FNBB.
For its financial accounting purposes, FNBB reported the
options it received in the stock of CC Holdings as an asset on
its books and records at a nominal value of $1,000, and for
Federal income tax purposes no OID was reported as income by FNBB
relating to the options.
On audit of petitioner’s taxable years 1992, 1993, and 1994,
and of petitioner’s claimed net operating loss carryforwards from
petitioner’s taxable years 1990 and 1991, respondent disallowed
for 1990 through 1993 the claimed business expense deductions
relating to Cruze’s $5 million covenant not to compete.
Respondent also disallowed for 1990 the claimed business expense
deduction relating to the $1.25 million paid to Panzica,
Battistella, and Navarra in 1989 under the bonus and
noncompetition agreements.
The basis for respondent’s disallowance for each year of the
claimed business expenses relating to Cruze’s $5 million covenant
not to compete was the determination that the payments to Cruze
constitute nondeductible capital expenditures.
The basis for respondent’s disallowance for 1990 of the
$1.25 million paid to Panzica, Battistella, and Navarra
apparently was the determination that the $1.25 million relates
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