- 26 -
attempted to create amortization deductions by impermissibly
splitting nondepreciable assets; namely, partnership interests in
newly created partnerships. Petitioners counter that the sub-
stance of the transactions coincides with its form in that they
and the Family Trusts separately acquired their respective term
and remainder interests with separate funds.
As a general rule, a taxpayer who purchases a term interest
in property which is used in a trade or business or held for the
production of income is entitled to deduct ratably the cost of
that interest over its expected life.13 See, e.g., Early v.
Commissioner, 445 F.2d 166, 169 (5th Cir. 1971), revg. on another
ground 52 T.C. 560 (1969); Manufacturers Hanover Trust Co. v.
Commissioner, 431 F.2d 664 (2d Cir. 1970), affg. T.C. Memo. 1969-
132; 1220 Realty Co. v. Commissioner, 322 F.2d 495, 498 (6th Cir.
1963), affg. in part and revg. in part T.C. Memo. 1962-67. This
principle applies even though the property underlying the term
interest is not depreciable. See, e.g., Early v. Commissioner,
supra; Manufacturers Hanover Trust Co. v. Commissioner, supra;
1220 Realty Co. v. Commissioner, supra; Elrick v. Commissioner,
56 T.C. 903 (1971), revd. on another ground 485 F.2d 1049 (D.C.
Cir. 1973). It is also clear that, where a taxpayer, without
13An exception to the general rule is sec. 167(e) (as
amended and in effect currently), which prohibits a taxpayer from
amortizing a term interest where a related person holds the
remainder interest. This section, however, applies only to term
interests acquired or created after July 27, 1989. Since peti-
tioners' term interests were created before that date, sec.
167(e) is inapplicable to the present cases.
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