- 11 -
purchase were capital expenditures because they arose out of, and
were incurred in connection with, acquisition of stock). See
also Berry Petroleum Co. & Subs. v. Commissioner, supra (costs
incurred in defending lawsuit filed after merger were capital
expenditures because lawsuit had its origins in the process of
acquisition culminating in the merger); Wagner v. Commissioner,
78 T.C. 910 (1982) (legal fees incurred by seller of stock to
defend against lawsuit by purchaser were capital expenditures
because the origin of the claim was the sale); Redwood Empire
Sav. & Loan Association v. Commissioner, 68 T.C. 960 (1977)
(amount paid to settle lawsuit brought by former owners of
property, and legal fees incurred in connection therewith, were
capital expenditures), affd. 628 F.2d 516 (9th Cir. 1980).
In the instant case, petitioners sought damages from MHP and
Mr. Meglin related to the purchase of the Truckee Hotel. During
arbitration, petitioners sought specific damage amounts for the
difference between the purchase price and the actual value of the
hotel, lost profits, and renovation costs. During the course of
litigation, petitioners had an appraisal done to determine the
fair market value of the property as of the date of purchase.
The appraisal indicated that petitioners paid a price
substantially in excess of the fair market value. As part of the
release and settlement agreement, Mr. Meglin agreed to reduce the
amount owed on the promissory note for the hotel by $271,473.95;
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011