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purpose of preventing damage to its business reputation. The
Court reaffirmed that the taxpayer’s motivation or business
purpose for purchasing an asset is irrelevant in determining
whether the asset is a capital asset.
Subsequently, in Frederick Weisman Co. v. Commissioner,
97 T.C. 563 (1991), we stated that we would no longer follow the
Court of Appeals for the Fifth Circuit’s opinion in Five Star
Manufacturing Co. v. Commissioner, supra. In the Frederick
Weisman Co. case, the taxpayer’s sole supplier suddenly required
the taxpayer to redeem the stock of all its shareholders other
than the principal owner. The taxpayer did so and deducted the
cost, including the purchase price of the redeemed stock plus the
expenses. The taxpayer maintained that the deduction was
justified as an ordinary and necessary business expense under
section 162 because, as was the case in Five Star Manufacturing
Co. v. Commissioner, supra, the redemption was necessary in order
to preserve the corporation’s business. We declined to allow the
deduction.
We discussed extensively in Frederick Weisman Co. our
disagreement with the Court of Appeals for the Fifth Circuit’s
opinion in Five Star Manufacturing Co. v. Commissioner, supra.
We stated:
to the extent that the Fifth Circuit’s Five Star
exception apparently transmutes the purchase price and
expenses of a corporation acquiring its own stock into
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