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acquired in connection with the acquisition of the
tangible property is to be taken into account as part
of the cost of the tangible property. For example, if
a taxpayer acquires a shopping center that is leased to
tenants operating retail stores, the portion (if any)
of the purchase price of the shopping center that is
attributable to the favorable attributes of the leases
is to be taken into account as a part of the basis of
the shopping center and is to be taken into account in
determining the depreciation deduction allowed with
respect to the shopping center.
The cost of acquiring an interest as a lessee
under an existing lease of tangible property is to be
taken into account under present law (see section 178
of the Code and Treas. Reg. sec. 1.162-11(a)) rather
than under the provisions of the bill. * * * [Fn.
refs. omitted.10]
H. Conf. Rept. 103-213, at 681-682 (1993), 1993-3 C.B. 393, 559-
560.
Petitioner focuses on the use of the phrase “under an
existing lease” in the first paragraph of the above-quoted
commentary. The use of that terminology could refer either to a
lease in existence at the time of the acquisition or to a lease
that continues in existence. Petitioner links the use of that
phrase to the legislative commentary and the single example that
addresses circumstances where the lease would continue beyond the
acquisition date. Petitioner would have us accept that this
10 Sec. 1.162-11(a), Income Tax Regs., similar to sec.
167(c)(2), requires the purchaser of a leasehold interest to
amortize an annual aliquot part of the cost over the remaining
term of the lease. As pertinent to this discussion, sec. 178
addresses lease renewal options as affecting the remaining term
of a lease.
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