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petitioner is entitled to deduct the portion of its payment to V.
Eihusen relating to the employment agreement.
In sum, we find petitioner’s payment of $3,082,710 to V.
Eihusen to be deductible under section 162(a) as an ordinary and
necessary business expense. Because we conclude that the entire
payment is deductible, we need not and do not apportion that
payment between the litigation settlement and the employment
agreement.
2. Section 162(k)
Respondent argues that petitioner may not deduct the payment
of $3,082,710 because it was made in connection with a
reacquisition of stock under section 162(k)(1). We disagree with
respondent.
Section 162(k)(1) disallows an “otherwise allowable”
deduction for any amounts “paid or incurred by a corporation in
connection with the reacquisition of its stock”. By enacting
this provision in 1986, Congress wished to provide expressly that
all expenditures incurred in reacquisition by a corporation of
its own stock are nonamortizable capital expenditures. In that
the record establishes that petitioner’s redemption of its shares
owned by V. Eihusen was a “reacquisition” under section 162(k),
our inquiry focuses on whether petitioner’s payment of $3,082,710
to V. Eihusen occurred “in connection with” that reacquisition.
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