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subsidiary corporation may deduct the costs of obtaining a loan
for which it is the borrower (through an assumption of its merger
partner’s obligations), where its parent procured the loan
commitment and originally committed to pay those costs.
Petitioner makes three arguments to support its entitlement
to these deductions: (1) That under the terms of the Commitment
Letter and the Bridge Loan agreement, petitioner, as successor to
ACQ, was obligated to pay the commitment fee and the legal fees,
and therefore may deduct them; (2) that as the borrower of the
Bridge Loan, petitioner (as successor to ACQ) is entitled to
deduct the costs associated with obtaining the loan; and (3) that
even if the costs were Schneider’s, petitioner is entitled to
deduct them because they directly benefited petitioner.
Respondent disagrees, asserting that petitioner was not legally
obligated to pay the loan commitment or legal fees under the
Commitment Letter or the Bridge Loan agreement, and that
Schneider, rather than petitioner, benefited from the loan
commitment fee.
As discussed more fully below, we conclude that Schneider
incurred the costs in question on behalf of petitioner and that
petitioner is entitled to deduct such costs.
22(...continued)
should be amortized over a period that includes the life of the
Term Loan. We shall therefore treat these payments as deductible
in 1991, if they are deductible by petitioner.
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