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INCOME AND DEDUCTIONS
A taxpayer bought the property it occupied as a tenant and was allowed a business deduction for the portion of the purchase price attributable to an excessive lease.
ABC Beverage Corp. (then known as Beverage America) in 1995 acquired via its subsidiary another botding company, including a lease with an option to purchase its business site in Hazelwood, Mo. A rent escalator clause in the lease made it advantageous to buy the property in 1997, the only purchase period permitted. The price under the purchase option was well above the fair market value of the property exclusive of the lease. Therefore, ABC capitalized the property at the appraised value of $2,750,000 and deducted the...