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merger assumed the subsidiary’s obligations. P paid
the legal fees directly. S invoiced P for the full
cost of the loan commitment fee, and P reimbursed S for
those costs in a subsequent year.
Held, P is entitled to amortization deductions for
its payments for the loan commitment and legal fees
because, by virtue of its merger with S’s subsidiary,
the costs were incurred on P’s behalf and eventually
paid by P.
In 1990, prior to S’s acquisition of P, certain
executives of P who were “disqualified individuals”
within the meaning of sec. 280G(c), I.R.C., obtained
employment agreements (1990 agreements) under which
they were entitled, upon a change in ownership or
control of P, to certain lump-sum payments if they
chose to terminate their employment during the 13th
month after the acquisition or if their employment was
involuntarily terminated within 3 years of the
acquisition. The lump-sum payments would have been
parachute payments within the meaning of sec.
280G(b)(2), I.R.C.
S’s acquisition of P in May 1991 triggered the
executives’ rights to the parachute payments under the
1990 agreements. S sought to retain the executives’
services for P beyond the 13th month after the
acquisition, rather than have the executives terminate
their employment at that time to obtain the parachute
payments. To that end, S negotiated new employment
agreements (1991 agreements) with the executives. The
executives used their rights to parachute payments
under the 1990 agreements as leverage to secure lump-
sum payments under the 1991 agreements. The lump-sum
payments provided in the 1991 agreements were larger
than the parachute payments and, further, were
conditioned on the executives’ either remaining in
petitioner’s employment, or ceasing employment only
under specified circumstances, for approximately 3
years through 1994. The 1991 agreements were
subsequently amended to accelerate the payment of the
lump sums (in a reduced amount) to December 1992 in
exchange for an extension of the employment term for an
additional year through 1995.
Held, under the facts of this case, the lump-sum
payments (excluding a portion conceded by R to be
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