Illinois Tool Works, Inc. & Subsidiaries - Page 12

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          in Pac. Transp. Co. v. Commissioner, 483 F.2d 209 (9th Cir.                 
          1973), vacating and remanding T.C. Memo. 1970-41.                           
               Respondent also relies on David R. Webb Co. v. Commissioner,           
          77 T.C. 1134 (1981), affd. 708 F.2d 1254 (7th Cir. 1983), in                
          which a taxpayer expressly assumed the obligation to make pension           
          payments to the widow of a corporate officer for her life as part           
          of the purchase of the assets and liabilities of a corporation.             
          Prior to the acquisition of the corporation by the taxpayer, the            
          corporation made the pension payments and deducted the payments             
          as ordinary and necessary business expenses.  Upon acquisition,             
          the taxpayer continued to make the pension payments to the widow            
          and claimed a deduction for the amount of the pension payments.             
          This Court stated:                                                          
                    It is well settled that the payment of an                         
               obligation of a preceding owner of property by the                     
               person acquiring such property, whether or not such                    
               obligation was fixed, contingent, or even known at the                 
               time such property was acquired, is not an ordinary and                
               necessary business expense.  Rather, when paid, such                   
               payment is a capital expenditure which becomes part of                 
               the cost basis of the acquired property.  Such is the                  
               result irrespective of what would have been the tax                    
               character of the payment to the prior owner.  United                   
               States v. Smith, 418 F.2d 589, 596 (5th Cir. 1969);                    
               Portland Gasoline Co. v. Commissioner, 181 F.2d 538,                   
               541 (5th Cir. 1950), affg. on this issue a Memorandum                  
               Opinion of this Court; W.D. Haden Co. v. Commissioner,                 
               165 F.2d 588, 591 (5th Cir. 1948). affg. on this issue                 
               a Memorandum Opinion of this Court; Holdcroft                          
               Transportation Co. v. Commissioner, 153 F.2d 323 (8th                  
               Cir. 1946), affg. a Memorandum Opinion of this Court;                  
               * * *  [Id. at 1137-1138.]                                             

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