Rodeway Inns of America v. Commissioner
United States Tax Court
Rodeway granted to RIS, subject to certain conditions, the exclusive rights to construct or cause to be constructed Rodeway motels in a specified area. Subsequently, Rodeway became convinced that RIS was not performing sufficiently to enable Rodeway to maintain a competitive position within the motel industry.
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Rodeway granted to RIS, subject to certain conditions, the exclusive rights to construct or cause to be constructed Rodeway motels in a specified area. Subsequently, Rodeway became convinced that RIS was not performing sufficiently to enable Rodeway to maintain a competitive position within the motel industry. The agreement was canceled, and as consideration, Rodeway paid RIS $ 100,000. Held, such payment did not constitute a business expense within sec. 162(a), I.R.C. 1954, but was a capital expenditure under sec. 263(a), I.R.C. 1954, and amortizable under sec. 167(a), I.R.C. 1954.
1Opinion of the Court
Simpson, Judge:
The Commissioner determined a deficiency of $43,094.22 in the petitioner’s 1968 Federal income tax. The issue to be decided is whether a payment made as consideration for canceling certain exclusive rights constituted a business expense under section 162(a) of the Internal Revenue Code of 19541 or whether it was a capital expenditure under section 263(a) and amortizable under section 167(a).
FINDINGS OF FACT
Some of the facts have been stipulated, and those facts are so found.
The petitioner, Rodeway Inns of America (Rodeway), is an Arizona corporation, which had its principal…
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