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$56,409.11, $110,317.07, $130,739.49, $75,636.22, and $56,492.60
for the years 1991, 1992, 1993, 1994, and 1995, respectively.
As an accrual basis reporter, November claimed a $1 million
deduction for Krieger’s fee for its 1991 reporting period, but
petitioner now claims the entire $1.5 million. November paid the
$6,793.36 rent for the Chestnut property for March 1991 and paid
amounts for rent and other items into the court during the
pendency of the lawsuit. After the lawsuit and pursuant to the
settlement between November/petitioner and the Lichtys and
others, November made monthly payments of $12,293.36 (the
equivalent of $6,793.36 rent on the Chestnut property plus
$5,500) to the Lichtys’ entity. For the 1991, 1992, and 1993
reporting periods, November paid $147,235.49, $145,962.73, and
$147,520, consisting of the above-described payments.
Respondent disallowed the $1 million deduction that had been
claimed for legal fees. The deduction was disallowed on the
alternative grounds that economic performance had not occurred or
that the fee was a capital, nonamortizable expenditure.
Respondent also determined that the improvements to the Chestnut
property were not currently deductible and that they should be
capitalized and depreciated during a 31.5-year recovery period
under the modified accelerated cost recovery system (MACRS).
Under respondent’s determination, November would be entitled to
depreciation deductions of $7,274, $12,376, and $13,165 for 1991,
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