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contract rights must be reduced by 15 percent because only 85
percent of the cost of such contract rights is properly
amortizable. Additionally, the parties agree that the allowable
amortization deduction for the acquired contract rights must be
adjusted in light of the 15-percent reduction to the original
amortizable bases. The parties do not agree, however, as to the
method for calculating the allowable amortization deduction for
taxable years subsequent to 1990.29
Section 167(a) generally allows as a depreciation deduction
a reasonable allowance for the exhaustion, and wear and tear
(including a reasonable allowance for obsolescence) of property
either used in a trade or business or held for the production of
income. Intangible assets may be depreciated where it is known
from experience or other factors that the assets will be of use
in the business or in the production of income for only a limited
period, the length of which can be estimated with reasonable
accuracy.30 Sec. 1.167(a)-3, Income Tax Regs.
29 The parties seek a decision regarding allowable amortization
for taxable years subsequent to 1990. Our decision with respect
to the amortization allowance, however, is limited to the taxable
years in issue in the instant case.
30 Sec. 197, which relates to the amortization of certain
acquired intangible assets, was added to the Code by the Omnibus
Budget Reconciliation Act of 1993 (OBRA-93), and applies to
property acquired after Aug. 10, 1993 (the date of enactment).
OBRA-93, Pub. L. 103-66, sec. 13261 (a), (g), 107 Stat. 312, 532,
540. Sec. 197 does not apply to the assets in issue in the
instant case because they were acquired prior to the date of
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