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lease term, providing that the amount of rent to be
paid by A for the first 11.5 months of the lease term
was zero (11.5-month period of zero rent) and spec-
ifying the amounts and due dates of the rent to be paid
by A over the 24 years of the lease term following that
11.5-month period. The agreement under which A sold B
a 35-percent interest in the building required, inter
alia, that P deliver to Lender a letter of credit
naming Lender as beneficiary (Lender letter of credit)
in order to secure P's obligations under the loan and
that A deliver to P a letter of credit naming P as
beneficiary (P letter of credit) in order to secure P's
obligations under the Lender letter of credit. In
order to service the loan during the 11.5-month period
of zero rent, A and B agreed in the partnership agree-
ment to make additional capital contributions to P on
the first day of each month during the last 11 months
of that period.
Respondent concedes that if the Court were to find
that the 11.5-month period of zero rent qualifies as a
reasonable rent holiday described in sec. 467(b)(5)(C),
I.R.C.,1 P would be entitled for 1988 to accrue rent
under the lease pursuant to the terms of the lease
(respondent's concession).
Held: The 11.5-month period of zero rent quali-
fies as a reasonable rent holiday described in sec.
467(b)(5)(C). Accordingly, pursuant to respondent's
concession, P shall accrue rent for 1988 in accordance
with the lease as provided in sec. 467(b)(1)(A).
Held, further: The lease did not allocate rent to
the 11.5-month period of zero rent in an amount equal
to the P letter of credit, and P is not required for
1988 to accrue as rent the amount of that letter of
credit.
Clark Reed Nichols and Cheryl A. Chevis, for petitioner.
Gerald W. Douglas, for respondent.
1 All section references are to the Internal Revenue Code (Code)
in effect for 1988. All Rule references are to the Tax Court
Rules of Practice and Procedure.
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