Meredith Corporation & Subsidiaries - Page 15

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          capital one, the Court held that the related transaction was also           
          capital.  Arrowsmith v. Commissioner, supra at 8.                           
               Respondent gainsays the applicability of the foregoing                 
          discussion to the issue herein because, among other reasons,                
          section 1.338(b)-3T, Temporary Income Tax Regs., 51 Fed. Reg.               
          3592 (Jan. 29, 1986), postdates Meredith's purchase of LHJ's                
          assets, and Arrowsmith does not directly address the                        
          deductibility of contingent asset acquisition costs.                        
               We agree with respondent that the regulations and case law             
          are not controlling authority.  Nevertheless, we think the                  
          general principles espoused therein comport equally well with the           
          increase in basis of fully amortized subscriber relationships as            
          they do with adjustments to AGUB of fully amortized or disposed             
          assets under section 338.  For present purposes, we descry no               
          reason to distinguish the two situations.                                   
               Moreover, these tax law principles antedate petitioner's               
          purchase of the assets of LHJ and are thus appropriately                    
          considered by the Court.  The Secretary states:                             
               These [section 1.338(b)-3T] rules provide for the                      
               incorporation of general principles of tax law which                   
               are applicable to the determination of the basis of                    
               assets acquired in actual asset purchases. * * *                       
                         *    *    *    *    *    *    *                              
               For example, an amount of adjusted grossed-up basis                    
               otherwise allocable to a disposed of capital asset may                 
               be deducted by new target as a capital loss.  [T.D.                    
               8072, 1986-1 C.B. 111, 114; citation omitted.]                         

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