In Re Kroy (Europe) Limited Kroy, Inc., Debtors. United States of America v. Kroy (Europe) Limited Kroy, Inc.

*368 Opinion by Judge McLAUGHLIN. Special Concurrence by Judge REINHARDT.

Kroy (Europe) Limited and Kroy, Inc. (collectively “Kroy”) appeal from the grant of summary judgment in favor of the United States. We have jurisdiction pursuant to 28 U.S.C. § 158 (d). We reverse.

I

Standard of Review

The parties stipulated to the facts. We review the grant of summary judgment de novo. Church of Scientology v. IRS, 991 F.2d 560 , 562 (9th Cir.1993).

II

Background

Kroy is a manufacturer of computer-based lettering systems. In 1986, Kroy decided to go private through a leveraged buyout (“LBO”). Kroy did not have the funds to repurchase its stock. Kroy borrowed $60.6 million from First Bank of Minneapolis (“First Bank”) and Quest Equities Corp. (“Quest”) to finance the LBO. To obtain the loans, Kroy paid the following fees (the “Loan Fees”), which Kroy amortized and deducted as ordinary and necessary business expenses: (i) an “advisory fee” of $1,200,000 and a “placement fee” of $625,000 to Bankers Trust Corporation (“Bankers Trust”); 1 (ii) a “credit arrangement and facility fee” of $1,000,000 to Quest; (in) a “commitment fee”, “closing fee”, and “bank agent fee” totalling $667,000 to…

concurring specially:

This is a close question. I cannot say that the conclusion reached in Judge McLaughlin’s opinion is incorrect. If Congress intended a different result, it will now have the opportunity to make its intentions clear.

27 F.3d 367 73 A.F.T.R.2d 94 -2263, 94-2 USTC P 50,316 In re KROY (EUROPE) LIMITED; Kroy, Inc., Debtors. UNITED STATES of America, Plaintiff-Appellee, v. KROY (EUROPE) LIMITED; Kroy, Inc., Defendants-Appellants. No. 92-17099. United States Court of Appeals, Ninth Circuit. Argued and Submitted March 18, 1994. Decided June 14, 1994. 1 Robert E. Miles, Fred T. Witt, Jr., and Streich Lang, Phoenix, AZ, for appellants Kroy (Europe) Ltd. and Kroy Inc. 2 Gary R. Allen, Gilbert S. Rothenberg, and Bridget M. Rowan, Tax Div. U.S. Dept. of Justice, Washington, DC, for appellee U.S. 3 Appeal from the United States District Court for the District of Arizona. 4 Before: REINHARDT and LEAVY, Circuit Judges, and McLAUGHLIN, District Judge. * 5 Opinion by Judge McLAUGHLIN. Special Concurrence by Judge REINHARDT. McLAUGHLIN, District Judge: 6 Kroy (Europe) Limited and Kroy, Inc. (collectively "Kroy") appeal from the grant of summary judgment in favor of the United States. We have jurisdiction pursuant to 28 U.S.C. Sec. 158 (d). We reverse. 7 * Standard of Review 8 The parties stipulated to the facts. We review the grant of summary judgment de novo. Church of Scientology v. IRS, 991 F.2d 560 , 562…