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issue to the respective depreciation deductions that they are
claiming with respect to that simulator.6
For the sake of completeness, we shall address whether,
assuming arguendo (1) that SDC transferred the computer simulator
to TGC by gift and (2) that any such gift is treated as a gift to
petitioners for purposes of determining petitioners’ entitlement
for the taxable years at issue to depreciation deductions with
respect to that simulator, petitioners have established the
amounts of such depreciation deductions to which they are enti-
tled. Petitioners argue that their basis in the computer simula-
tor under section 1015(a) is SDC’s basis in that simulator, i.e.,
SDC’s cost of that simulator. According to petitioners, SDC’s
cost of, and thus its basis in, the computer simulator was
$1,049,117, the amount that SDC paid to TGC pursuant to the 1992
contract, and not the $215,000 that petitioners claimed in Form
4562 relating to Mr. Horwath’s 1997 Schedule C.7
On the record before us, we reject petitioners’ argument.
Section 167(c) provides in pertinent part: “The basis on which
6The record establishes that at the time the 1992 contract
was terminated around Nov. 6, 1997, the computer simulator was
the property of TGC. Assuming arguendo that SDC transferred the
computer simulator to TGC by gift, the record does not establish
that TGC owned the computer simulator prior to the termination of
the 1992 contract.
7The $215,000 that petitioners claimed as their basis in the
computer simulator in Form 4562 represented petitioners’ best
estimate of the replacement cost of that simulator.
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