in an attractive and orderly manner and to refrain from substantially modifying the exterior design of the Atrium. In the event that the Atrium was materially damaged, destroyed by fire or other casualty, or taken by condemnation, LBC had the option to rebuild, replace, repair, or raze the Atrium. If LBC elected to raze the Atrium, LBC was required to cover the area with an attractive surface until rebuilding (if any) and to grant HRO a 40-foot setback easement on the south side of the 3UBC land.
By an agreement dated December 31, 1987, UBD leased back the entirety of 3UBC from HRO (the 3UBC Space Lease). The 3UBC Space Lease had an initial term of 9 years and 6 months and automatically renewed for a second term running until September 30, 2012, unless UBD elected otherwise. The rent was $ 2,070,000 a year during the initial term and $ 2,333,452 a year during the second term. The 3UBC Space Lease required that UBD pay all expenses and taxes, maintain and repair the *76 building, insure the building, and replace the building if destroyed.
On December 31, 1987, LBC assumed HRO's lease of approximately 122,000 square feet of space in 2UBC and subleased to HRO approximately 130,000 square feet of space in 1UBC.
The 3UBC Sale Agreement, the 3UBC Ground Lease, the 3UBC Space Lease, the agreements relating to HRO's lease in 2UBC and sublease in 1UBC, and related agreements shall be referred to collectively as the 3UBC Transaction.
*126 b. TAX TREATMENT OF THE 3UBC TRANSACTION
On its Federal income tax return filed for 1988, the UBC affiliated group reported gain on the installment basis using an amount realized of $ 14,201,933 from the sale of 3UBC. The parties agree that the reported amount is the correct amount realized for purposes of determining gain or loss from the sale of 3UBC.
On its Federal income tax return filed for 1988, the UBC affiliated group reported gain on the installment basis using an adjusted basis of $ 5,321,361 for purposes of determining gain or loss on the sale of 3UBC. The parties agree that the reported adjusted basis is correct, except to the extent, if any, that the cost of the Atrium Assets, see supra sec. II.A.7., is allocable to *77 the basis of 3UBC.
10. THE 1UBC LAND TRANSACTION
By a purchase and sale agreement dated December 30, 1988, LBC sold the 1UBC land (together with LBC' s interest in the Ground Lease relating to the 1UBC land) to ARICO (the 1UBC land transaction). LBC realized $ 2,900,000 as a result of that transaction. On its Federal income tax return filed for 1988, the UBC affiliated group reported the sale of the 1UBC land as a long-term capital loss using an adjusted basis of $ 2,953,980. The parties agree that the reported adjusted basis is correct, except to the extent, if any, that the cost of the Atrium Assets, see supra sec. II.A.7., is allocable to the basis of