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In 1992, a fire destroyed one of Culinary’s two
manufacturing facilities. As a temporary measure, Culinary
leased two facilities and fitted them out with new machinery.
In 1993, Culinary broke ground for the construction of a
125,000-square-foot, $18 million office and manufacturing
facility on the south side of Chicago in a neighborhood that the
City of Chicago was attempting to redevelop. That neighborhood
is generally known as the “Back-of-the-[stock]Yards”. In June
1994, the City of Chicago granted Culinary a $5 million tax
increment financing (TIF) subsidy in connection with the
construction of Culinary’s new facility and, more specifically,
with the jobs that it would bring to the Back-of-the-Yards. The
subsidy was to be paid over time.
In August 1994, petitioner purchased the stock of Culinary
in a transaction that was treated as an asset purchase for
Federal income tax purposes. At that time, petitioner allocated
its purchase price to the various assets acquired from Culinary
and claimed depreciation and amortization deductions with respect
thereto. No allocation was made to the TIF subsidy.
Beginning in mid-1995, Culinary moved its operations from
its north side-owned and leased facilities into its new Back-of-
the-Yards facility.
On July 12, 1999, during the audit of petitioner’s Federal
income tax returns for its September 30, 1995 through 1999, tax
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Last modified: November 10, 2007