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Income Tax Regs. (For convenience, we will refer to the new
partnership as Andantech-US.)
Continuing, petitioners assert that, upon the deemed
recontribution of the property to Andantech-US, Andantech-US
acquired a substituted basis in the property equal to the adjusted
basis of the property in the hands of the contributing partners, RD
Leasing and EICI. Secs. 732, 723.
Thus, according to petitioners, the effect of the deemed
termination of Andantech-Foreign is that (1) no gain or loss is
recognized to RD Leasing or EICI under section 731(a) or to
Andantech-US under section 731(b), (2) Andantech-US has a basis in
the computer equipment of $119 million, and (3) RD Leasing has a
basis of $119 million in its 98-percent interest in Andantech-US.
6. Section 167 provides for a depreciation deduction with
respect to property used in a taxpayer’s trade or business or held
for the production of income by a taxpayer. Section 168
establishes the appropriate depreciation method, recovery period,
and convention for tangible property. (The depreciation deduction
allows a taxpayer to recover the cost of the property used in a
trade or business or for the production of income. United States
v. Ludey, 274 U.S. 295, 300-301 (1927); Durkin v. Commissioner, 872
F.2d 1271, 1276 (7th Cir. 1989), affg. 87 T.C. 1329 (1986).) Here,
according to petitioner, Andantech-US’s basis in the computer
equipment was $119 million, and Andantech-US properly reported the
depreciation deduction on its partnership tax returns for the
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