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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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