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leases or subleases to which the property is subject. See H.
Rept. 103-111, at 769 & n.139 (1993), 1993-3 C.B. at 345.
The statute is concise, to the point, and expressed as
follows:
SEC. 167(c). Basis for Depreciation.--
(1) In general.--The basis on which exhaustion,
wear and tear, and obsolescence are to be allowed in
respect of any property shall be the adjusted basis
provided in section 1011, for the purpose of
determining the gain on the sale or other disposition
of such property.
(2) special rule for property subject to lease.--
If any property is acquired subject to a lease--
(A) no portion of the adjusted basis shall be
allocated to the leasehold interest, and
(B) the entire adjusted basis shall be taken
into account in determining the depreciation
deduction (if any) with respect to the property
subject to the lease. [Sec. 167(c)(1) and (2).]
The parties do not dispute that if we decide that the vessel
acquired by petitioner is “property subject to a lease,” as
referenced in the statute, then no portion of the acquisition
cost can be attributed to any lease in question. Where the
parties part company is in their interpretation of the phrase “If
any property is acquired subject to a lease”. Respondent argues
that petitioner acquired the vessel subject to the lease to the
UMTC partnership; i.e., the lease under which petitioner was
entitled to use the vessel. Petitioner, on the other hand,
argues that the statute only applies to property that is subject
to a lease when acquired and will continue to be subject to the
same lease afterwards. Petitioner argues that its purpose in
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