Freres Lumber Co., Inc. - Page 32

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            Fed. Reg. 27039-27040 (July 18, 1988).  The total consideration                                
            is allocated to class I assets in an amount equal to each asset's                              
            face value.  The remaining consideration is then allocated to                                  
            class II assets in proportion to the fair market value of each                                 
            class II asset.  The remaining consideration is then allocated to                              
            class III assets in an amount equal to the fair market value of                                
            each class III asset.  Any residue is allocated to class IV.                                   
            Sec. 1.1060-1T(d), Temporary Income Tax Regs., supra.                                          
                  Petitioner argues that no value should be allocated to class                             
            IV because the value of class III assets exceeds the sale price.                               
            Respondent determined that the sale price exceeded the value of                                
            the class III assets by $680,000 on March 1, 1988.  Respondent                                 
            contends that the sale price exceeded the value of class III                                   
            assets by $1,027,000.                                                                          
                  The parties agree that the value of the timber contracts was                             
            $1.5 million on March 1, 1988.  We have decided that the values                                
            of the land and covenants not to compete were $145,000 and                                     
            $930,000, respectively.  Petitioner contends that the fair market                              
            values of building and improvements, equipment, and rolling stock                              
            were as provided in the reports of its expert witnesses.  The                                  
            following chart shows the parties' positions relating to the                                   
            allocation for all assets:                                                                     








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