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placed in service prior to 1989, as adjusted under former section
48(q) for the investment credits claimed and investment credits
recaptured with respect to those assets. The reported
accumulated depreciation equaled 48 percent of the depreciation
claimed on the Atrium Structure and the Skyway to the date of the
reported sale. No gain or loss was reported as realized on the
sale of the underlying land because the reported amount realized
($135,000) equaled the cost basis of the land.
On its Federal income tax returns for the taxable years 1989
through 1991, the UBC affiliated group took deductions for rental
expenses on account of the Atrium Lease.
d. UBC's Financial Statements
In the notes to UBC's affiliated financial statements for
1988 and 1989, UBC made disclosures of the Atrium Sale Agreement
and the Atrium Lease as a sale and leaseback.
e. Petitioner's Responses to Information Document
Requests Regarding the Atrium
In a letter dated August 11, 1992, to the St. Paul office of
the Internal Revenue Service (IRS) Appeals Division (Appeals
Division), petitioner first claimed that the cost of the Atrium
Assets should be allocated to the bases of adjoining properties.
The Appeals Division referred petitioner's claim for cost
allocation to the IRS Examination Division.
On January 11, 1993, the IRS agent assigned to review
petitioner's claim (the IRS agent) issued an information document
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