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claimed deduction for the taxable year ended June 30, 1996. The
deficiencies arose in 2 taxable years because respondent’s
adjustment affected the amount of the general business credit
carried forward and applied to the taxable year ended June 30,
1997.
After concessions by the parties, we are left to decide
whether petitioner may deduct a $3,082,710 payment that it made
to its former employee/shareholder Virgil R. Eihusen (V.
Eihusen). Petitioner made the payment to V. Eihusen in
relinquishment of its obligations under an employment agreement
with him and in settlement of various legal claims which he had
filed against petitioner. At the same time, petitioner also paid
V. Eihusen other amounts in reacquisition of all of his stock in
petitioner.
We hold that petitioner may deduct the $3,082,710 payment
under section 162(a) as an ordinary and necessary business
expense and that section 162(k) does not preclude this deduction.
Unless otherwise indicated, section references are to the
Internal Revenue Code applicable to the subject years. Rule
references are to the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Many facts were stipulated, and we incorporate the parties’
stipulation of facts and the accompanying exhibits by this
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