Illinois Tool Works, Inc. & Subsidiaries - Page 15

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               The Lemelson lawsuit, like the contingent liability in                 
          David R. Webb Co. v. Commissioner, supra, was a contingent                  
          liability that petitioner was aware of prior to the acquisition             
          of assets and liabilities from DeVilbiss and that petitioner                
          expressly assumed in the purchase agreement.  Additionally, the             
          status of the Lemelson lawsuit was considered in determining the            
          final purchase price, and petitioner created a reserve for the              
          liability arising from the patent infringement claim.                       
               Following David R. Webb Co., we conclude that petitioner’s             
          payment of the court judgment, which was an obligation of                   
          DeVilbiss and acquired by petitioner, whether or not such                   
          obligation was fixed, contingent, or even known at the time such            
          property was acquired, was not an ordinary and necessary business           
          expense.  Such payment is a capital expenditure that becomes part           
          of the cost basis of the acquired property regardless of what               
          would have been the tax character of the payment to the prior               
          owner.  See David R. Webb Co. v. Commissioner, 77 T.C. at 1137-             
          1138; see also Meredith Corp. & Subs. v. Commissioner, 102 T.C.             
          406, 454-455 (1994) (holding that the time at which a contingent            
          liability that is assumed in an asset acquisition is to be                  
          capitalized occurs when the expense is incurred).                           
               We have considered all of the remaining arguments that have            
          been made by the parties for a result contrary to that expressed            

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