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Respondent argues that petitioner’s interpretation of DEFRA
section 177(d)(2) is inconsistent with fundamental tenets of
depreciation in that: (1) Petitioner is claiming amortization
using a fair market value basis as of the date it became taxable;
and (2) permitting petitioner to amortize its intangibles using a
fair market value basis allows petitioner to receive a “double
recovery” of costs that it expensed on its books before becoming
a taxable entity. But, Congress’s selection of the special basis
rule contained in DEFRA section 177(d)(2)(A)(ii) is not the first
time that Congress selected a higher of fair market value or
regular adjusted cost basis for determining adjusted basis.
Petitioner’s situation is analogous to the determination of the
adjusted basis of property held at the time of the enactment of
the Federal income tax on March 1, 1913. The basis rules which
finally developed for property held on, and acquired before, that
date are contained in section 1053,10 which provides:
SEC. 1053. PROPERTY ACQUIRED BEFORE MARCH 1, 1913.
In the case of property acquired before March 1,
1913, if the basis otherwise determined under this
10The rule now contained in sec. 1053 has undergone a number
of changes since the original enactment of the Federal income tax
in 1913. Although taxpayers were originally required to use a
fair market value basis for determining any gain from the sale or
other disposition of property, see Revenue Act of 1916, ch. 463,
sec. 2(c), 39 Stat. 758, Congress eventually settled on a dual-
basis rule for determining gain or loss with the basis for
determining any gain as the higher of the regular adjusted cost
basis or fair market value of the property as of Mar. 1, 1913.
See Revenue Act of 1934, ch. 277, sec. 113(a)(14), 48 Stat. 706.
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