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paid or incurred during the taxable year in carrying on any trade
or business”. As pertinent to this case, section 1.162-1(a),
Income Tax Regs., states that, among items included in business
expenses, are “insurance premiums against fire, storm, theft,
accident, or other similar losses in the case of a business”.
Petitioner’s burden is to prove that the payments are not capital
expenditures as alleged by respondent in the notice.1 I believe
that petitioner has failed to carry that burden. Specifically,
petitioner has not shown that, as to it, the exit fee is anything
other that a cost incident to the purchase, nor has it shown that
the entrance fee purchased an insurance benefit or, even if it
did, that such insurance benefit did not extend beyond the year
in which the purchase occurred.
B. The Exit Fee
1. Introduction
The exit fee is imposed by 12 U.S.C. section
1815(d)(2)(E)(i) (Supp. I, 1989), in an amount to be determined
jointly by the FDIC and the Secretary of the Treasury
(Secretary). See 12 U.S.C. sec. 1815(d)(2)(F) (Supp. I, 1989).
The origin of the exit fee requirement is section 206(a)(7) of
FIRREA. With respect to transactions such as the purchase,
1 On the basis of the notice and the pleadings, it is
apparently respondent’s position that, if the payments are not
capital expenditures, they may be deducted as ordinary and
necessary business expenses under sec. 162(a).
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