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597 (1948); Rev. Rul. 67-407, 1967-2 C.B. 59; 1 Mertens, Law of
Federal Income Taxation, sec. 5.06, at 16 (1999 rev.).
The evidence is sufficiently clear that the funds received
in 1989 and 1990 relating to leasehold improvements to buildings
in which Stores 5 and 6 operated under short-term leases were
received by the partnership and by petitioner in reimbursement
for capital expenditures made to the buildings owned by the
landlords. As such, these funds do not constitute taxable income
to the partnership or to petitioner. See Suwalsky, 47-5th T.M.,
Real Estate Leases and Improvements, A-22 to A-26 (July 6,
1998).3
Depreciation Recapture Income
In June of 1989, the partnership opened Store 5. Throughout
the years in issue, the partnership purchased videos that Store 5
owned and rented to customers.
On May 1, 1991, for a stated sales price of $200,000, the
partnership sold Store 5 and the videos associated with Store 5.
The partnership's total cost basis in the assets of Store 5
equaled $288,239. The sale took the form of an installment sale
3 Generally, under sec. 110, for leases entered into after
Aug. 5, 1997, funds received by tenants in reimbursement from
landlords for improvements to certain buildings leased under
short-term leases are treated as nontaxable income to the
tenants.
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