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the regular adjusted basis rules and any special adjusted basis
rules, including DEFRA section 177(d)(2).
Even if the “internal revenue laws” language in the
regulation refers only to adjustments to initial cost or other
basis, we fail to see how this forecloses any reference to DEFRA
section 177(d)(2). In our view, DEFRA section 177(d)(2) is in
effect an adjustment to cost basis.9 Section 1.1011-1, Income
Tax Regs., reflects such an interpretation. A reasonable
interpretation of adjusted basis under section 1011 incorporates
any internal revenue laws which provide for a specific adjusted
basis for purposes of determining gain or loss. DEFRA section
177(d)(2)(A) is an internal revenue law, which specifically
provides the adjusted basis for purposes of determining any gain
from the sale or other disposition of property held by petitioner
on January 1, 1985. Section 167(g) requires the use of this
adjusted basis for purposes of amortizing petitioner’s alleged
intangibles.
It also appears that Congress contemplated this result under
section 167(g) when it provided an exception in DEFRA section 177
9Respondent claims that “The plain language of the dual
basis rule provides for no such alternatives to � 1016, 1017 or
1018 for the purpose of making basis adjustments. Thus, nothing
in * * * [DEFRA] � 177(d) triggers the ‘as otherwise specifically
provided’ clause of the regulation for any purpose.” However,
DEFRA sec. 177(d)(2) refers to an “adjusted basis” and not an
unadjusted basis. An adjusted basis presupposes that the
appropriate adjustments have either been made or incorporated.
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