Meredith Corporation & Subsidiaries - Page 14

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          otherwise allocable to such asset is treated "under principles of           
          tax law applicable when part of the cost of an asset (not                   
          previously reflected in its basis) is paid after the asset has              
          been disposed of, depreciated, amortized or depleted."  Sec.                
          1.338(b)-3T(d)(2), Temporary Income Tax Regs., 51 Fed. Reg. 3593            
          (Jan. 29, 1986).                                                            
               Section 1.338(b)-3T(j), Example (1)(vi), Temporary Income              
          Tax Regs., 51 Fed. Reg. 3595 (Jan. 29, 1986) considers the                  
          disposition of stock (a capital asset) before a liability became            
          fixed and determinable.  Since the stock had been disposed of               
          prior to the contingent liability's becoming fixed, no amount of            
          the increase in AGUB attributable to such asset was allocable to            
          any other asset, including goodwill and going concern value.  See           
          discussion supra pp. 13-14.  Instead, the example directs the               
          taxpayer to deduct the liability as a capital loss under the                
          principles of Arrowsmith v. Commissioner, 344 U.S. 6 (1952).                
               In Arrowsmith, a corporation liquidated, and its                       
          shareholders reported their gain as capital.  In a later year, a            
          judgment was rendered against the former corporation.  The                  
          erstwhile shareholders paid the judgment for the corporation                
          because they were transferees of its assets.  They deducted the             
          entire amount paid as an ordinary loss.  However, the Supreme               
          Court determined that the losses that resulted from the payment             
          of the judgment stemmed from a legal obligation arising out of              
          the prior liquidation.  Since the original transaction was a                

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