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The phrase “in connection with” has been ascribed a broad
meaning both with respect to section 162(k) and with respect to
other statutory sections. See, e.g., Snow v. Commissioner, 416
U.S. 500, 502-503 (1974); Huntsman v. Commissioner, 905 F.2d
1182, 1184 (8th Cir. 1990), revg. and remanding 91 T.C. 917
(1988); Ft. Howard Corp. v. Commissioner, 103 T.C. 345 (1994),
supplemented by 107 T.C. 187 (1996). An expense, however, does
not fall within the broad meaning afforded it under section
162(k) simply because the expense is paid at a time that is
proximate to a redemption. As the conferees made explicit in
their report underlying the enactment of section 162(k):
while the phrase “in connection with [a]
redemption” is intended to be construed broadly,
the provision is not intended to deny a deduction
for otherwise deductible amounts paid in a
transaction that has no nexus with the redemption
other than being proximate in time or arising out
of the same general circumstances. For example, if
a corporation redeems a departing employee’s stock
and makes a payment to the employee in discharge of
the corporation’s obligations under an employment
contract, the payment in discharge of the
contractual obligation is not subject to
disallowance under this provision. * * * Payments
in discharge of other types of contractual
obligations, in settlement of litigation, or
pursuant to other actual or potential legal
obligations or rights, may also be outside the
intended scope of the provision to the extent it is
clearly established that the payment does not
represent consideration for the stock or expenses
related to its acquisition, and is not a payment
that is a fundamental part of a “standstill” or
similar agreement. [H. Conf. Rept. 99-841 (Vol.
II), at II-168 to II-169 (1986), 1986-3 C.B. (Vol.
4) 1, 168-169.]
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