- 34 -
In U.S. Bancorp & Consol. Subs. v. Commissioner, supra at
233-234, the taxpayer had a lease for a mainframe computer and
paid a fee (rollover fee) in order to cancel that lease and enter
into a new lease for a second, more powerful mainframe computer.
The Court held that the taxpayer was required to capitalize the
rollover fee. Id. at 239. In reaching that holding, the Court
observed:
The cases brought to our attention * * * occupy
opposite ends of a spectrum. At one end is the case
where a lessee pays a lessor to terminate a lease and
no subsequent lease is entered into between the par-
ties. In such a case the termination fee is clearly
deductible in the year incurred, as there is no second
lease raising the possibility that the lessee will
realize significant future benefits beyond the current
taxable year as a result of the termination payment.
At the opposite end is the case of a lessee that can-
cels a lease and then immediately enters into another
lease with the same lessor, covering the same property.
In substance, the first lease is not canceled but
continues in modified form, and any unrecovered costs
22(...continued)
expenditures at issue in order to modify and enhance the 1985
sale and leaseback agreements, the Commissioner of Internal
Revenue (Commissioner) did not argue in Metrocorp, Inc. v.
Commissioner, 116 T.C. 211 (2001), and T.J. Enters., Inc. v.
Commissioner, 101 T.C. 581 (1993), that the costs at issue there
modified, enhanced, or created a capital asset. The Commissioner
argued in those two cases only that the costs at issue there
created significant future benefits for the taxpayers there
involved. On the record presented in Metrocorp, Inc. v. Commis-
sioner, supra at 222, and T.J. Enters., Inc. v. Commissioner,
supra at 592-593, the Court found that there were no significant
future benefits requiring capitalization of the costs at issue in
those cases. In the instant case, we have found that petitioner
paid the expenditures at issue in order to modify and enhance the
1985 sale and leaseback agreements, thereby necessarily providing
significant future benefits to petitioner. See Wells Fargo & Co.
and Subs. v. Commissioner, supra at 884.
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