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Pursuant to our Order of May 1, 1995, the parties submitted
simultaneous and answering memoranda of law, addressing the
proper method for determining the acquisition cost of those
assets for which there had been no stipulation. As set forth in
these memoranda, petitioners argue for an approach whereby the
amount paid for an asset, adjusted for depreciation, establishes
the acquisition cost of an asset for purposes of the net worth
computation. Respondent, on the other hand, argues that the
acquisition cost of an asset should constantly be adjusted to
reflect realized (if not recognized) income. To quote
respondent:
In summary, acquisition costs of an asset are generated
not only from external contributions but also from
realized gains, the internal reinvestment of which
acquires an increase, improvement, or enhancement in
such asset.
Having carefully considered the parties' respective arguments, we
accept petitioners' computation of their net worth under section
7430(c)(4)(A)(iii). We find no basis in this case for
disregarding the separate legal status of entities in which
petitioners hold beneficial or legal interests. See, e.g.,
Moline Properties, Inc. v. Commissioner, 319 U.S. 436, 438-439
(1943); Webb v. United States, 15 F.3d 203, 207 (1st Cir. 1994);
23(...continued)
accidental omission. The stipulation of facts contains other
nonmaterial modifications and corrections.
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