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the acquisition of Rose’s customer base. Because Chase would not
sell Rose’s customer base separate from Rose’s other assets,
petitioner purchased Rose’s stock and discarded the Rose name and
infrastructure to gain access to Rose’s customer base. In line
with its goals, a short time after the acquisition, petitioner
employed a small number of Rose’s employees, abandoned the Rose
name, and jettisoned all infrastructure assets other than Rose’s
customer accounts, which petitioner then integrated into the
Schwab customer base.
Petitioner elected, under section 338(g) and (h)(10), to
treat the transaction as a purchase of Rose’s assets. Section
338 permits one corporation to acquire the stock of another
corporation and to elect to treat the transaction as a purchase
of the acquired corporation’s assets, with the benefit of a
stepped-up basis in the acquired assets.13 Under the regulations
in effect for 1989, the allocation of the stock purchase price to
the acquired assets involved the calculation of the MADSP, which
in this case was $181,376,869. See sec. 1.338(h)(10)-1T(f),
Temporary Income Tax Regs., 51 Fed. Reg. 745 (Jan. 8, 1986). The
MADSP is then allocated, in a statutorily prescribed order, to
certain defined categories of tangible assets. The allocation to
a particular asset may not exceed the fair market value of the
13 Sec. 338 was a codification of the holding in Kimbell-
Diamond Milling Co. v. Commissioner, 14 T.C. 74 (1950), affd. per
curiam 187 F.2d 718 (5th Cir. 1951).
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