- 21 -
For the above reasons, we conclude that the $1.199 million
paid to Panzica, Battistella, and Navarra should be treated as
compensation paid to the employees for services rendered in prior
years and as deductible by petitioner for 1990 as ordinary and
necessary business expenses.
$650,000 in Legal and Professional Fees
Under section 162(k), amounts paid by a corporation in
connection with redemption of its stock are treated as
nondeductible capital expenditures. Sec. 162(k); see United
States v. Hilton Hotels Corp., 397 U.S. 580 (1970); Woodward v.
Commissioner, 397 U.S. 572, 577-578 (1970). Amounts that are to
be capitalized under section 162(k) include amounts paid in
consideration for the stock, fees incurred in connection with the
redemption of the stock, and legal, accounting, appraisal, and
brokerage fees, and any other expenses (except loan fees)
necessary or incidental to the redemption. See H. Rept. 99-426,
at 248-249 (1985), 1986-3 C.B. (Vol. 2) 248-249; S. Rept. 99-313,
at 222-224 (1986), 1986-3 C.B. (Vol. 3) 222-224; Fort Howard
Corp. & Subs. v. Commissioner, 107 T.C. 187, 188-189 (1996),
supplementing 103 T.C. 395 (1994).
Also, under various applications of the step transaction
doctrine, a series of formally separate steps may be collapsed
and treated as a single transaction. Penrod v. Commissioner, 88
T.C. 1415, 1428 (1987). A series of steps may be collapsed and
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