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expense in that litigation, and the associated settlement costs,
commonly arise in the course of conducting business. In view of
the foregoing, we conclude that the portion of the $3,082,710
relating to the settlement of litigation is deductible under
section 162(a) as an ordinary and necessary business expense.
As to the portion of the payment made in discharge of
petitioner’s outstanding obligations under the employment
agreement, that portion also qualifies for deductibility under
section 162(a) to the extent it meets that section’s
requirements. Peninsular Metal Prods. Corp. v. Commissioner, 37
T.C. 172 (1961); Driskill Hotel Co. v. Commissioner, a Memorandum
Opinion of this Court dated May 22, 1953. Applying the test of
Commissioner v. Lincoln Sav. & Loan Association, supra, to the
portion of petitioner’s payment made to discharge its obligations
under the employment agreement, we find that this portion (1) was
paid or incurred during the subject years; (2) was incurred in
connection with petitioner’s trade or business as it was directly
related to conducting petitioner’s business; (3) was an expense;
(4) was a necessary expense in that petitioner had an obligation
to compensate V. Eihusen pursuant to the employment agreement;
and (5) was an ordinary expense in that costs associated with
maintaining or terminating an employment relationship commonly
arise in the course of conducting business. Thus, we hold that
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