- 19 -
Respondent allowed the portion attributable to the rental of the
Chestnut property but disallowed the $5,500 portion. Respondent
argues that the $5,500 portion is a payment to the Lichtys in
exchange for their interest in the operation. Under the
circumstances here, the $5,500 portion of the monthly payment is
not deductible rent, but it would be deductible under section 162
as an expense incurred in the operation of the bingo business.
Respondent contends that the $5,500 monthly payments to the
Lichtys are merely a continuation of the $5,000 monthly payments
that were made on the note prior to the litigation and
settlement. Again, respondent’s argument rests on the premise
that petitioner was acquiring capital assets under the
settlement.
In these circumstances, we are not convinced that the $5,500
should be classified as capital in nature and nondeductible. As
discussed in detail above, petitioner and/or November was the
owner of the bingo operations on paper prior to the litigation
and settlement but had an underlying agreement with the Lichtys
to receive income for appearing as the owner and managing the
business. The terms of the settlement do not delineate whether
the $5,500 payment is in exchange for the Lichtys’ capital
interest or for the Lichtys’ forbearance from interfering with
petitioner’s operation of the bingo business. The Lichtys were
prohibited from having an interest in the bingo operation and
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011