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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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