Illinois Tool Works, Inc. & Subsidiaries - Page 10

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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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