Union Carbide Foreign Sales Corporation, et al. - Page 13




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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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