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OPINION ........................... 17
I. The Values of Petitioner’s Favorable Financing
Intangible Assets ................... 21
A. Petitioner’s Valuation of Its Favorable Financing
Intangible Assets as of January 1, 1985 ...... 21
B. Respondent’s Position That Favorable Financing Has No
Value ....................... 27
1. Expectation of Income ............. 28
2. Realization of Value ............. 30
3. Contra-Liability Theory ............ 31
a. Favorable Financing Is an Asset ..... 32
b. Favorable Financing Can Be Assigned a
Separate Value ............. 33
c. Double Counting the Value ........ 35
4. Petitioner’s Purchase of Its Debt Obligations
Would Result in Discharge of Indebtedness
Income .................... 37
C. Respondent’s Argument That the Value of Petitioner’s
Favorable Financing Is Limited to the Value of
Petitioner’s Income Spread ............ 38
D. Respondent’s Argument That Taxes Reduce the Value of
Favorable Financing ................ 43
II. Favorable Financing Intangible Assets Have a Reasonably
Estimable Useful Life As of January 1, 1985 ...... 47
III. Conclusion ....................... 53
APPENDIX: Investment Bank Bid Prices ............ 54
MEMORANDUM FINDINGS OF FACT AND OPINION
RUWE, Judge: In docket No. 3941-99, respondent determined
deficiencies in petitioner’s Federal income tax of $36,623,695
for 1985 and $40,111,127 for 1986. Petitioner claims
overpayments of $9,604,085 for 1985 and $12,418,469 for 1986.
In docket No. 15626-99, respondent determined deficiencies
in petitioner’s Federal income tax of $26,200,358 for 1987,
$13,827,654 for 1988, $6,225,404 for 1989, and $23,466,338 for
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