Mun Li Fong - Page 16

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          Fong case is not to be regarded as a determination of the bases             
          of the properties.                                                          
               Petitioner appropriately notes that if respondent, as a                
          condition to settlement of the 1989 Fong case, wanted to ensure             
          that the mitigation provisions under section 1312(7) would apply            
          to open petitioner’s 1986 year, respondent could have requested             
          that petitioner enter into a closing agreement under section 7121           
          (see sec. 1.1313(a)-2, Income Tax Regs.) or into a specific                 
          agreement under section 1313(a)(4) to that effect.  See also sec.           
          1.1313(a)-4, Income Tax Regs.                                               
               Respondent speculates that if, in the context of negotiating           
          settlement of the depreciation adjustment in the 1989 Fong case,            
          respondent had requested and petitioner had refused to enter into           
          a settlement agreement under the above mitigation regulations for           
          purposes of opening petitioner’s 1986 year, the settlement likely           
          would have broken down, and respondent then would have been                 
          forced to litigate the depreciation adjustment for 1989 in order            
          to obtain an adverse Tax Court decision that would qualify as a             
          determination of basis under section 1312(7).  Respondent asserts           
          that such a scenario would be counter to the public policy in               
          favor of settling litigation and further that respondent in the             
          1989 Fong case might have been subject to an award of litigation            
          costs under section 7430 for pursuing an adjustment (namely,                
          disallowance of the claimed 1989 depreciation expense of the Lily           





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