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pay and the difference is attributable to the lease cancellation.
Petitioner’s characterization is no different from the arguments
that have been made in several cases considered by this and other
courts prior to the enactment of section 167(c)(2). Except for
the holding in one circuit, courts have not permitted a lessee’s
allocation of a portion of the acquisition cost of a leased
capital asset to the cancellation of a burdensome lease in order
to permit a business deduction under section 162. The Supreme
Court, the Court of Appeals for the Second Circuit, and this
Court have all reasoned that the value attributable to the
lease’s income stream represents value that a third-party buyer
would be required to pay the seller for the leased asset. As
pointed out above, no seller would part with a leased asset
without receiving value for the income attributable to the lease.
Using that rationale, the Supreme Court approved the Court of
Appeals for the Second Circuit’s approach of allowing the
acquisition cost (including the portion attributable to the value
of the lease) to be made part of the acquired asset’s depreciable
basis.
Petitioner’s argument was addressed about 40 years ago in
two seminal cases: Cleveland Allerton Hotel, Inc. v.
Commissioner, 166 F.2d 805 (6th Cir. 1948), revg. a Memorandum
Opinion of this Court dated May 7, 1947, and Millinery Ctr. Bldg.
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