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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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