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The same conference report also explains that section 162(k) does
not apply to a discharge of a corporate obligation even when an
employment contract and a redemption agreement are contained in
the same document and are negotiated at the same time. Id. at
II-169 n.4, 1986-3 C.B. (Vol. 4) at 169.
The setting here is specifically referenced in the
conference report, which places outside of section 162(k) both a
payment in settlement of litigation and a payment in discharge of
a corporation’s obligation to a departing employee. Respondent
attempts to downplay this portion of the report and in fact does
not even discuss it, focusing instead on our opinion in Ft.
Howard Corp. v. Commissioner, supra, and on the opinion of the
Court of Appeals for the Eighth Circuit in Huntsman v.
Commissioner, supra, for the proposition that the phrase “in
connection with” is construed broadly to reach all costs
connected in any way with a company’s reacquisition of its stock.
Respondent observes that V. Eihusen’s lawsuits centered on his
attempt to retain his lost positions and that these claims were
settled at the same time as his stock was redeemed. Respondent
draws from this proximity and the broad construction given to the
phrase “in connection with” that the first event occurred “in
connection with” the second event.
We agree with respondent that section 162(k) reaches broadly
to deny deductibility of all expenses which are paid “in
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