Agreement, however, allowed LBC to terminate its obligations relating to the Atrium after June 30, 2001, upon payment to Den-Cal of a termination fee and the occurrence of certain other conditions. LBC and Den-Cal acknowledged *73 that LBC's election to terminate the Atrium Operating Covenants "would result in the diminution in value of Two United Bank Center in an amount at least as large as the termination fee", and, accordingly, LBC granted to Den-Cal a lien to secure performance under the Atrium Operating Covenants in the event that the Atrium were razed prior to expiration of the obligations.
*124 The 2UBC Sale Agreement, the 2UBC Construction Agreement, and related agreements shall be referred to collectively as the 2UBC Transaction.
b. TAX TREATMENT OF THE 2UBC TRANSACTION
As a result of the 2UBC Transaction, LBC realized the following amounts from the sale of its properties: Property Amount Realized
2UBC improvements $ 22,847,841
2UBC land 4,219,181
50-percent interest in
Motorbank I improvements 9,795,022
50-percent interest in
Motorbank I land 2,038,506
On January 26, 1988, the UBC affiliated group filed an amended corporate income tax return for its 1985 taxable year, on which the UBC affiliated group reported adjusted bases for determining gain or loss from the sale of its properties in the 2UBC Transaction as follows: Property Adjusted Basis
2UBC improvements $ 15,533,317
2UBC land 664,559
50-percent interest in
Motorbank I improvements 1,816,730
50-percent interest in
Motorbank I land 321,083
The *74 parties agree that those adjusted bases are correct, except to the extent, if any, that the cost of the Atrium Assets, see supra sec. II.A.7., is allocable to the bases of the properties sold in the 2UBC transaction.
9. THE 3UBC TRANSACTION
a. THE VARIOUS AGREEMENTS
By purchase and sale agreement dated December 31, 1987, LBC sold 3UBC, but not the land underlying 3UBC (the 3UBC land), to Holme, Roberts & Owen (HRO), a partnership that was engaged in the practice of law and that served as the Bank's legal counsel during the years in issue (the 3UBC Sale Agreement). The purchase price of $ 15,957,648 was paid by a note that was nonrecourse to the partners of HRO; however, *125 the note was secured by a deed of trust to 3UBC and an irrevocable letter of credit in the amount of $ 2.4 million.
By an agreement dated December 31, 1987, LBC leased the 3UBC land to HRO for a term commencing on December 31, 1987, and running for 34 years and 9 months (the 3UBC Ground Lease). For the period through September 30, 2012, the annual rent was $ 25,000 plus 30 percent of any net rental income generated by 3UBC in excess of $ 2.5 million. After September 30, 2012, the rent was to be at fair market value. Pursuant *75 to the 3UBC Ground Lease, LBC and HRO granted to each other certain reciprocal easements pertaining to the ingress and egress of pedestrians through common areas, including the Atrium. Also, LBC agreed to operate the Atrium