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includes as examples of capital expenditures “The cost of
acquisition * * * of buildings, machinery and equipment,
furniture and fixtures, and similar property having a useful life
substantially beyond the taxable year.” (Emphasis added.)
Generally, the payment of a liability of a preceding owner of
property by the person acquiring such property, whether or not
such liability was fixed or contingent at the time such property
was acquired, is not an ordinary and necessary business expense.
David R. Webb Co. v. Commissioner, 708 F.2d 1254, 1257 (7th Cir.
1983), affg. 77 T.C. 1134 (1981); Pac. Transp. Co. v.
Commissioner, 483 F.2d 209 (9th Cir. 1973), vacating and
remanding T.C. Memo. 1970-41; United States v. Smith, 418 F.2d
589, 596 (5th Cir. 1969); M. Buten & Sons, Inc. v. Commissioner,
T.C. Memo. 1972-44. Instead, payment of such a liability is
capitalized and added to the basis of the acquired property.
Petitioner contends that the amount of the payment that was
made in satisfaction of the Lemelson lawsuit should not be added
to the cost basis of the property that was acquired in the asset
acquisition from DeVilbiss because the payment was highly
speculative and unexpected at the time of purchase. Petitioner
relies on the Tax Court’s decision in Pac. Transp. Co. v.
Commissioner, T.C. Memo. 1970-41, vacated and remanded 483 F.2d
209 (9th Cir. 1973). Petitioner’s alternative arguments are:
(1) A payment in satisfaction of an assumed liability, which
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