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recalculated under Rule 155. Section 1016(a)(2)(A), which
requires basis to be adjusted for the depreciation "allowed",
creates a problem in this case for the years in which petitioner
has a net operating loss. For those years, the other deductions
modified herein and affecting petitioner's losses are to be
deducted first, and then the amount of the depreciation allowed
is to be determined. Sec. 1.1016-3(e), Income Tax Regs.
Except as regards the McMahon Note, respondent argues that
petitioner failed to substantiate its interest expense.
Petitioner, however, has proven the beginning balances, the
ending balances, and with a reasonable degree of certainty the
interest rates of the TIAA Loan and the San Francisco Loan. For
purposes of the Rule 155 calculation, amortization tables,
showing payments made and the amount of allocable interest, can
be derived from these numbers.
Unlike the TIAA Loan, however, the San Francisco Loan had a
variable interest rate. The interest on this loan is only in
issue from March 4, 1988, through December 31, 1988. The
interest rate was fixed at 9.5 percent until September 1, 1988.
The monthly payments on the loan for the entire period were fixed
at $3,994.06. A San Francisco Federal Savings loan statement of
December 12, 1988, reflects a loan balance as of that date of
$473,573.08. If the parties are unable to compute the interest
on the San Francisco loan for the March 4 to December 31, 1988,
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