- 13 - claims that “Once the debtor enters into a debt obligation for a fixed rate, a subsequent increase in market rates of interest over the obligation’s fixed contract rate does not create an asset, amortizable or otherwise.” Respondent claims that petitioner’s favorable financing involves only the differential between market rates of interest and the contract rates of interest stated in petitioner’s debt obligations. Respondent argues that this differential is not an asset, it is “fortuitous”, and it is “not a function of an expenditure”. Respondent’s contentions are similar to the arguments the Commissioner made in Ithaca Indus., Inc. v. Commissioner, 97 T.C. 253 (1991), affd. 17 F.3d 684 (4th Cir. 1994). In that case, the taxpayer sought to amortize the value of certain favorable raw material contracts that it had purchased as part of a stock acquisition. We held that the favorable raw material contracts constituted an intangible asset subject to amortization. Id. at 275. We stated in that case: Respondent argues that the life of the contracts is indefinite because any value inhering in the contracts exists only so long as the favorable price spread is predicted to exist. Respondent argues that because yarn prices fluctuate, it is impossible to predict with any accuracy the length of time the spread would exist. We find this argument unpersuasive. The favorable spread of the contracts is not the asset being amortized. The asset is the contracts themselves. The favorable spread is used only to determine the value of the contracts. [Id. at 274.]Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
Last modified: May 25, 2011