Claymont Investments, Inc., As Successor in Interest to New CCI, Inc. and Subsidiaries - Page 13

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          section 165(a) is limited to the taxpayer’s adjusted tax basis in           
          the asset lost.  Sec. 165(b).                                               
               Petitioners contend that, pursuant to section 165, they are            
          entitled to deduct the losses attributable to their customer                
          relationships with Paramount, MGM/UA, and MCEG because the                  
          relationships were irrevocably lost when Paramount and MGM/UA               
          executed film processing contracts with Deluxe and MCEG went                
          bankrupt.  Respondent contends that petitioners have not                    
          accurately established their adjusted tax bases in the                      
               Petitioners’ expert determined that immediately prior to the           
          Technicolor acquisition the total value of the Paramount, MGM/UA,           
          and MCEG relationships was $23,882,000.9  In determining the                
          value of the relationships, he assumed that each relationship               
          would continue in perpetuity.  He asserted that his assumption              
          was based on Carlton’s expectation at the time of the acquisition           
          and stated that “it is reasonable and likely, that Carlton’s                
          management in reviewing the acquisition, would have assumed that            
          the historical patterns of long-term client relationships would             
          be expected to continue.”  We disagree.                                     

               9  Petitioners, in accordance with their expert’s analysis,            
          reduced the value attributable to the Paramount, MGM/UA, and MCEG           
          customer relationships from $27,496,000, $2,698,000, and                    
          $5,569,000 (i.e., the amounts calculated in the 1994 Valuation              
          and claimed on petitioners’ amended 1992 and 1993 returns) to               
          $18,328,000, $1,814,000, and $3,740,000, respectively.                      

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