Chief Industries, Inc. and Subsidiaries - Page 13

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          restricted shares of stock in petitioner owned directly by him.             
          Petitioner also transferred to V. Eihusen $1,674,000, forgave the           
          Hall County judgment of $1,386,951, and factored in the golf cart           
          adjustment of $21,759 in release of litigation and employment               
          claims which V. Eihusen had, or may have had, primarily against             
          petitioner and its directors, officers, and employees.  V.                  
          Eihusen, in turn, delivered to petitioner in addition to the                
          noted shares of stock:  (1) Certificates evidencing dismissal,              
          with prejudice, of all claims which he had outstanding against              
          petitioner in both the ESOP litigation and the Intermodal                   
          litigation; (2) a global release of all claims he may have had              
          against petitioner, its subsidiaries, First National, the ESOP              
          committee, and petitioner’s officers, directors, employees, and             
          agents; (3) his resignation as a director, officer, and employee            
          of petitioner; and (4) his release of petitioner’s obligations              
          under the employment agreement.                                             
               Petitioner deducted $3,082,710 ($1,674,000 + $1,386,951 +              
          $21,759) as an ordinary and necessary business expense, noting on           
          its tax return that this expense was a “lawsuit settlement cost”.           
          Respondent disallowed the deduction, determining that the payment           
          in question was a nondeductible expense either because it was               
          capital or because it was made in connection with petitioner’s              
          reacquisition of its stock.                                                 








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