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For purposes of determining any gain on the sale or other
disposition of property (other than tangible depreciable
property), DEFRA section 177(d)(2)(A)(ii) first requires a
comparison between petitioner’s adjusted cost basis under the
general rules and the fair market value of the property as of
January 1, 1985. DEFRA section 177(d)(2)(A)(ii) mandates that
for purposes of determining any gain, petitioner’s adjusted basis
is the higher of the two. In order to make such a comparison,
petitioner’s adjusted cost basis under the regular rules must
first be determined. It is clear that this adjusted cost basis
is determined under the regular adjusted basis rules of the Code
(i.e., sections 1011-1023), which include section 1016(a)(3).
Indeed, DEFRA section 177(d)(5) provides that “For purposes of
this subsection, the adjusted basis of any asset shall be
determined under part II of subchapter O of the Internal Revenue
Code of 1954.”14 It follows that, for purposes of the DEFRA
section 177(d)(2)(A)(ii) comparison, the regular adjusted cost
basis of any property held by petitioner would include a section
1016(a)(3) adjustment where appropriate to account for pre-1985
amortization sustained in petitioner’s intangibles. It also
follows that the regular adjusted cost basis rules of the Code
would apply for purposes of amortization allowed (or allowable)
14Part II of subch. O of the Code is entitled “Basis Rules
of General Application” and consists of secs. 1011 through 1024
(renumbered as secs. 1011 through 1023).
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