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lives for the Paramount, MGM/UA, and MCEG relationships were
6.25, 6.33, and 6.08 years, respectively. Beginning in 1989,
Technicolor claimed amortization deductions based on the values
C&L determined for the Paramount, MCEG, and MGM/UA relationships.
Petitioners, on their 1992 tax return, deducted the remaining
adjusted basis of the Paramount relationship. Similarly, on
their 1993 tax return, petitioners deducted the remaining
adjusted bases of the MGM/UA and MCEG relationships.
D. The Closing Agreement
During the examination of petitioners’ 1988 through 1992
returns, respondent challenged the bases and lives ascribed to
the relationships. The parties resolved the valuation dispute
under the Intangibles Settlement Initiative Program. In a
closing agreement (i.e., executed on September 16, 1994, by
petitioners and April 29, 1997, by respondent) the parties agreed
to reduce the bases of the relationships by 15 percent with no
adjustment to the remaining lives as determined in the 1989
Valuation. In addition, the parties agreed that the basis
amounts allocated to the class IV nonamortizable intangible
assets would be increased by $36,458,000.
E. The 1994 Goodwill Valuation
In a letter dated September 30, 1994 (1994 Valuation), C&L
determined the value of film customer relationships acquired in
the purchase of Technicolor. In preparing the 1994 Valuation,
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