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the nature and extent of the proper allocation.
2. Arguments of the Parties
Relying on a line of cases that includes Estate of Collins
v. Commissioner, 31 T.C. 238 (1958), and Willow Terrace Dev. Co.
v. Commissioner, 40 T.C. 689 (1963), affd. 345 F.2d 933 (5th Cir.
1965) (the developer line of cases), petitioner argues that it is
entitled under section 1016(a)(1)2 to allocate the cost of the
Atrium Assets to the bases of properties that benefited from the
Atrium. Petitioner claims that “[t]he Bank constructed the
Atrium for the purpose of creating an office building complex
with the expectation that the buildings within the complex would
increase in value” and that the Atrium, as a stand-alone asset,
has negative value. Petitioner asserts that an allocation of the
costs of “the Atrium Assets in proportion to the relative fair
market values of the benefited properties as of December 31,
1987, the close of the year in which the Atrium was completed”,
is “equitable” and would result in a “proper adjustment” under
section 1016(a)(1). Petitioner proposes the following
allocation:
2 As pertinent to this case, sec. 1011 provides that the
adjusted basis for determining gain or loss from the sale or
other disposition of property is the cost of such property, see
sec. 1012, adjusted as provided in sec. 1016. Sec. 1016(a)(1),
in part, provides that proper adjustment is to be made for
expenditures, receipts, losses, or other items, properly
chargeable to capital account. Sec. 1.1016-2(a), Income Tax
Regs., in part, states: “The cost or other basis shall be
properly adjusted for any expenditure, receipt, loss, or other
item, properly chargeable to capital account, including the cost
of improvements and betterments made to the property.”
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