t c no united_states tax_court norwest corporation and subsidiaries successor_in_interest to united banks of colorado inc and subsidiaries et al petitioners v commissioner of internal revenue respondent docket nos filed date i p is the successor_in_interest to an affiliated_group_of_corporations whose parent_corporation is united banks of colorado inc the ubc affiliated_group and ubc respectively ubc and certain other members of the ubc affiliated_group collectively the bank built a structure called the atrium p seeks to allocate the cost of constructing the atrium to the bases of adjoining properties that were held by the bank alternatively p seeks to deduct the cost of the cases of the following petitioners are consolidated herewith norwest corp successor_in_interest to united banks of colorado inc and subs docket no norwest corp successor_in_interest to intrawest financial corp and subs docket no norwest corp successor_in_interest to lorin investment co inc and subs docket no constructing the atrium under sec_165 i r c held p may not allocate the cost of constructing the atrium to the bases of the adjoining properties because the basic purpose of the atrium was not the enhancement of the adjoining properties so as to induce sales of those properties the basic purpose test enunciated in 31_tc_238 and subsequent cases is applicable but the atrium does not qualify under that test held further p has failed to establish a loss equal to the cost of constructing the atrium pursuant to sec_1_165-1 and d income_tax regs and therefore is not entitled to a deduction under sec_165 i r c ii pursuant to various agreements the atrium transaction a member of the ubc affiliated_group lbc sold an undivided 48-percent interest in the atrium and certain related property and another member of the ubc affiliated_group ubd agreed to lease the atrium and certain related property from lbc and another party the ubc affiliated_group reported the atrium transaction as a sale_and_leaseback for federal_income_tax purposes held p may not disavow the form of the atrium transaction iii p claims that it is entitled to calculate the corporate_minimum_tax for the ubc affiliated group's and taxable years on a separate_return basis and claims refunds for those years on that basis held the regular_tax_deduction under sec_56 i r c for an affiliated_group_of_corporations is limited to the amount of tax imposed on the group under chapter one of subtitle a without regard to the corporate_minimum_tax and certain other provisions and reduced by the sum of certain credits and therefore p's refund claim is denied iv p claims that certain furniture and fixtures placed_in_service by various members of the ubc affiliated_group during the group’s through taxable years which are described in both asset guideline classe sec_57 distributive trades and services and dollar_figure office furniture fixtures and equipment of revproc_87_56 1987_2_cb_674 should be classified as cla sec_57 property held revproc_87_56 carries forward the pattern established in revproc_62_21 1962_2_cb_418 the priority rule_of revproc_62_21 is implicit in rev_proc asset_guideline_class dollar_figure takes precedence over asset guideline cla sec_57 v p claims that in determining the portion of the ubc affiliated group’s consolidated_net_operating_loss nol that is attributable to bad_debt deductions of bank members and is thus subject_to the special 10-year carryback rule_of sec_172 i r c it can apply the special loss ordering rule_of sec_172 i r c to the consolidated nol of both bank and nonbank members held the consolidated_return_regulations contemplate that the consolidated nol is comprised of the separate_taxable_income including separate nol of each member and the special ordering rules of sec_172 i r c apply to a bank not between a bank member and a nonbank member_of_an_affiliated_group walter a pickhardt mark hager and scott g husaby for petitioners jack forsberg tracy martinez robert m ratchford and david l zoss for respondent opinion halpern judge norwest corp norwest a delaware corporation is the petitioner in each of these consolidated cases norwest is the petitioner by virtue of being the successor_in_interest to various other corporations when necessary for clarity we shall refer by name to norwest or one or the other of those predecessor corporations otherwise we shall use the term petitioner to refer without distinction to norwest or one or more of the predecessor corporations these consolidated cases involve determinations by respondent of deficiencies in petitioner's federal income taxes and claims by petitioner of overpayments as follows norwest corp subs successor_in_interest docket no to united banks of colorado inc subs taxable_year ending date date date date deficiency dollar_figure big_number big_number big_number overpayment dollar_figure big_number big_number big_number norwest corp successor_in_interest to docket no united banks of colorado inc and subs year ending taxable overpayment deficiency date date date date date date dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number norwest corp successor_in_interest to docket no intrawest financial corp and subs taxable_year ending deficiency date date dollar_figure big_number norwest corp successor_in_interest in docket no lorin investment co inc and subs year ending taxable date date deficiency dollar_figure big_number after concessions by the parties the issues remaining for decision are whether petitioner may allocate the cost of certain property to the bases of other properties whether petitioner is entitled to a loss deduction under sec_165 for the cost of certain property whether petitioner may disavow the form of a transaction relating to certain property whether petitioner is entitled to refunds of tax paid pursuant to sec_56 the applicable_recovery_period for determining depreciation_deductions with respect to certain furniture and fixtures and the appropriate method for determining that portion of a consolidated_net_operating_loss attributable to the bad_debt deductions of the bank members of an affiliated_group some of the facts have been stipulated and are so found the stipulations of facts filed by the parties with accompanying exhibits are incorporated herein by this reference the parties have made separate stipulations of fact occupying more than pages and there are accompanying exhibits we shall set forth only those stipulated facts that are necessary to understand our report along with other facts that we find unless otherwise noted all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure contents i background ii atrium issues a findings_of_fact background events preceding the transactions dollar_figure a introduction dollar_figure b the committee meeting of date dollar_figure c the harrison price report dollar_figure d the planning dynamics report dollar_figure e the committee meeting of date dollar_figure f approval of the facilities master_plan dollar_figure the transactions dollar_figure a the partnership dollar_figure b the ground lease dollar_figure c the atrium project agreement dollar_figure d the skyway agreement the easement agreement and the space lease dollar_figure the ross and eastdil reports dollar_figure the committee meeting of date dollar_figure construction and operation of the atrium dollar_figure the atrium assets cost bases and depreciation dollar_figure the 2ubc transaction dollar_figure a the various agreements dollar_figure b tax treatment of the 2ubc transaction dollar_figure the 3ubc transaction dollar_figure a the various agreements dollar_figure b tax treatment of the 3ubc transaction dollar_figure the 1ubc land transaction dollar_figure the atrium transaction dollar_figure a background dollar_figure b the atrium sale agreement dollar_figure c tax treatment by ubc of the atrium transaction dollar_figure d ubc's financial statements dollar_figure e petitioner's responses to information document requests regarding the atrium dollar_figure b the atrium assets allocation of the costs dollar_figure issue dollar_figure arguments of the parties dollar_figure analysis dollar_figure a developer line of cases dollar_figure b the principles of the developer line of cases dollar_figure c application of the basic purpose test dollar_figure conclusion dollar_figure c d the atrium assets loss deduction under sec_165 dollar_figure the atrium transaction disavowal of form dollar_figure issue dollar_figure arguments of the parties dollar_figure analysis dollar_figure a introduction dollar_figure b the danielson_rule does not apply dollar_figure c respondent’s weinert rule dollar_figure d estate of durkin v commissioner dollar_figure e petitioner may not disavow the form of the atrium transaction dollar_figure conclusion dollar_figure e d a b c iii corporate_minimum_tax issue dollar_figure introduction dollar_figure the corporate_minimum_tax provisions dollar_figure the two methods dollar_figure ubc's method dollar_figure petitioner's method dollar_figure analysis dollar_figure issue dollar_figure arguments of the parties dollar_figure discussion dollar_figure conclusion dollar_figure iv furniture and fixtures recovery_period issue dollar_figure a introduction dollar_figure applicable_recovery_period class_life dollar_figure b arguments of the parties dollar_figure c discussion dollar_figure d e conclusion dollar_figure v net_operating_loss issue dollar_figure a introduction dollar_figure facts dollar_figure b c petitioner’s position dollar_figure discussion dollar_figure d e conclusion dollar_figure i background on the date that the petition in each of these cases was filed norwest’s principal_place_of_business was in minneapolis minnesota norwest is a bank_holding_company whose affiliates provide banking and other financial services on date united banks of colorado inc ubc a colorado corporation was merged with and into norwest pursuant to sec_368 at all relevant times prior to its merger with norwest ubc was the common parent_corporation of an affiliated_group_of_corporations making a consolidated_return of income the ubc affiliated_group ubc was a calendar-year taxpayer petitioner is the successor_in_interest to the ubc affiliated_group as it existed during the years in issue on date intrawest financial corp intrawest a colorado corporation was merged with and into ubc pursuant to sec_368 at all relevant times prior to its merger with ubc intrawest was the common parent_corporation of an affiliated_group_of_corporations making a consolidated_return of income the intrawest affiliated_group petitioner is the successor_in_interest to the intrawest affiliated_group for its taxable_year and its short taxable_year ended date on date ubc purchased for cash the stock of lorin investment co inc lorin a colorado corporation at all relevant times prior to being acquired by ubc lorin was the common parent_corporation of an affiliated_group_of_corporations making a consolidated_return of income the lorin affiliated_group petitioner is the successor_in_interest to the lorin consolidated_group for its taxable years and ii atrium issues a findings_of_fact background during the years in issue ubc owned in excess of percent of the stock of united bank of denver ubd a national bank with its principal_place_of_business in denver colorado ubd was the sole shareholder of lincoln building corp lbc a colorado corporation lbc was the real_estate_holding_company for ubd in the papers filed in this case the convention of the parties has been to use the term the bank to refer to ubc ubd or lbc individually or collectively in cases where those corporations acted in concert or where separate identification would not be material we shall adopt that convention during the 1970s lbc owned a portion of a block in downtown denver colorado which is bounded by 17th avenue to the south by 18th avenue to the north by broadway to the west and by lincoln street to the east the broadway-lincoln block during the 1970s and throughout some of the years in issue lbc owned two buildings located on the broadway-lincoln block namely two united bank center building located pincite broadway 2ubc and three united bank center building located pincite broadway 3ubc a sketch of the broadway-lincoln block the two buildings and certain other features is attached hereto as an appendix 2ubc is a 22-story office building which was constructed in and has approximately big_number square feet of rentable space 2ubc is considered a notable building in denver because it was the first modern highrise built in the city and was the first highrise designed by i m pei 3ubc is a four-story office building which was constructed in and has approximately big_number square feet of rentable space throughout the 1970s 2ubc was primarily leased to non-bank tenants and 3ubc was wholly occupied by the bank 3ubc served as the bank's headquarters prior to completion in of one united bank center building 1ubc see infra sec ii a b during the 1970s lbc also owned land on the broadway- lincoln block between 2ubc and 3ubc and east of 2ubc extending to lincoln street there were improvements on that land constituting an enclosed courtyard on the corner of lincoln street and 17th avenue of the broadway-lincoln block were a glass-enclosed restaurant and a small office building both of which were owned by lbc during the 1970s lbc owned a portion of a block in downtown denver colorado that is bounded by 17th avenue to the south by 18th avenue to the north by lincoln street to the west and by sherman street to the east the lincoln-sherman block that block is directly to the east of and across lincoln street from the broadway-lincoln block during the 1970s and throughout some of the years in issue lbc owned land and improvements on the lincoln-sherman block directly across from 3ubc including a structure named motorbank i that structure consisted of three underground levels two of which contained office space and one of which contained mechanicals a ground level that contained office space and floors of above-ground parking space motorbank i had approximately big_number square feet of office space and approximately big_number square feet of parking space 3ubc was connected to the motorbank i parking garage by an elevated enclosed pedestrian walkway and was connected to the motorbank i office space by a passage under lincoln street motorbank i also had facilities to accommodate drive-up banking through about during the 1970s lbc owned a portion of a block in downtown denver colorado that is bounded by 17th avenue to the south by 18th avenue to the north by sherman street to the west and grant street to the east the sherman-grant block that block is directly to the east of and across sherman street from the lincoln-sherman block in the late 1970s lbc purchased property on the sherman-grant block events preceding the transactions a introduction in the late 1970s the bank was in need of additional office space and was planning the development of a new office tower unable to acquire a site on broadway the intersection of broadway and 17th avenue where 2ubc was located was considered the percent corner in the central business district of denver the bank decided to pursue the development of an office tower on the lincoln-sherman block at that time the lincoln- sherman block was on the fringe of the central business district and was considered to be a substantially less preferable location than the broadway-lincoln block in the late 1970s lbc acquired land on the lincoln-sherman block adjacent to motorbank i and fronting on the corner of lincoln street and 17th avenue in contemplation of the construction of a new headquarters building on the site the board_of directors of ubd had a working committee called the directors' facility planning committee the committee which initiated or approved all major decisions regarding the bank's real_estate holdings the committee was closely involved in the planning of the new office tower project the project in the late 1970s planning dynamics corp planning dynamics was retained by the bank as a consultant for the project and was closely involved in the project through in the gerald d hines interests the developer was selected by the bank as the developer for the project in the bank and the developer selected the firm of johnson-burgee the architects to be the architects for the project b the committee meeting of date architectural plans for the project prepared by the architects were presented to the committee on date the architects proposed that a glass atrium be constructed on the broadway-lincoln block enclosing the area between 2ubc and 3ubc and east of 2ubc and that the atrium be connected to the new office tower on the lincoln-sherman block by an elevated enclosed pedestrian walkway across lincoln street the minutes of the committee meeting on date in part provide mr hershner presented an architectural scale model of the project as designed by philip johnson john burgee for review by the committee and explained the impact to the existing bank block the architectural scheme as shown resolves two major design issues how to tie the new tower to 17th avenue and broadway and how to achieve identity of the new tower and existing bank facilities as a center even though the properties are separated by lincoln street the solution proposed by johnson burgee shows a strong skyline identity and unique visual image created by the curvilinear roof line of the new tower identity of the project as a center from a pedestrian scale at the street level is achieved by the skylight enclosure bridging lincoln street then wrapping around the existing tower building and connecting with the main bank circulation patterns to the new tower through the proposed enclosed mall in the existing bank block effectively places the front door of the new tower on 17th and broadway c the harrison price report in the bank retained the harrison price co harrison price as an outside consultant to address a number of issues regarding the project including whether the proposed atrium should remain a part of the project harrison price prepared a report dated date entitled economic contribution of the glass pavilion to the united bank of denver setting forth its opinion regarding the proposed atrium the harrison price report the harrison price report assumed that the proposed atrium would cost dollar_figure million and estimated that it would generate a net operating deficit of dollar_figure a year based on revenues and operating_expenses of dollar_figure and dollar_figure respectively the harrison price report concluded that the proposed atrium is a rational and constructive commitment which will return a positive benefit to the stockholders of the bank that opinion was based on three factors the proposed atrium would increase the rental rates for 2ubc and 3ubc to generate a value addition of dollar_figure million the proposed atrium provides a means to counteract any adverse perception of number united bank center associated with an off-broadway location and the proposed atrium will in all liklihood sic add power presence and image to the bank's operation which will be reflected in greater market share d the planning dynamics report in a letter dated date richard r holtz president of planning dynamics addressed the economics aesthetics and functionality of the proposed atrium the planning dynamics report planning dynamics estimated the incremental_cost of building the proposed atrium to be approximately dollar_figure million planning dynamics estimated that constructing the proposed atrium would increase the rental rate for 2ubc by dollar_figure a square foot thereby increasing the value of 2ubc by approximately dollar_figure million planning dynamics estimated an increased rental rate for the new office tower of dollar_figure a square foot thereby increasing its value by approximately dollar_figure million dollar_figure million of which would inure to the benefit of the bank although mr holtz believed that the proposed atrium would enhance the value of 3ubc he did not project any increase in value to 3ubc in the planning dynamics report because 3ubc was wholly occupied by the bank and was not considered as a sale property for the bank planning dynamics calculated a value over cost figure for constructing the proposed atrium of approximately dollar_figure million planning dynamics also estimated a net annual operating deficit of dollar_figure a year based on projected revenues and expenses of dollar_figure and dollar_figure respectively in addition the planning dynamics report stated as you know the design problem from the beginning has been to bring the lincoln street site to broadway this will allow the one united bank center building to gain the benefits of a corner location in lieu of a secondary location the main benefit is higher rents as previously mentioned the unique architectural design of the atrium sensitively embraces two united bank center and continues to present this fine building to the 17th and broadway location at the same time the atrium creates a powerful memory shape impression which gives unity to four different buildings and creates the center in seeing this shape again at the top of one united bank center viewers will visually identify with the center from vantage points all over denver when one sees the top ones sic mind will automatically recall the shape at the atrium level this design will give the bank great visual and location identity as did the designs for pennzoil in houston and transamerica in san francisco and should be very helpful in marketing and staying unique among tough competitors e the committee meeting of date on date the committee considered the issue of whether the proposed atrium should be retained as part of the project the committee reviewed the harrison price report the planning dynamics report and financial projections showing the impact that construction of the proposed atrium could have on earnings by increasing the bank's market share the minutes of the committee meeting on date in part provide bank management feels very positive about the project the general feeling of the bank is in favor of the enclosed atrium to allow the bank to achieve a larger market share the atrium should create a major center making united bank center a nationally notable building complex f approval of the facilities master_plan on date the committee approved the facilities master_plan which included construction of the proposed atrium on date that plan was approved at a joint meeting of the boards of directors of ubc and ubd the transactions a the partnership lincoln limited the partnership was a colorado limited_partnership hines colorado ltd hines colorado a colorado limited_partnership was the sole general_partner of the partnership and arico america realestate investment co arico a nevada corporation operating as a real_estate_investment_trust was the sole limited_partner of the partnership b the ground lease by a lease agreement dated date lbc leased to the partnership for a term of years land on the south end of the lincoln-sherman block between motorbank i and 17th avenue and land on the south end of the sherman-grant block together the 1ubc land the ground lease the ground lease provided that the partnership would at its own expense construct an office tower on the lincoln-sherman block 1ubc and a parking garage on the sherman-grant block the parking garage according to the plans and specifications appended to the ground lease the ground lease provided for the payment to lbc of both a fixed rent and a rent based on the net_cash_flow generated by 1ubc and the parking garage following the execution of the ground lease and related documents the partnership commenced construction of 1ubc which is a 52-story office tower with approximately big_number square feet of rentable space and of the parking garage construction was completed in the second half of c the atrium project agreement concurrently with the execution of the ground lease the bank and the partnership entered into an agreement dated date whereby the bank at its sole expense would construct a glass atrium the atrium on the broadway-lincoln block enclosing the area between 2ubc and 3ubc and east of 2ubc the atrium project agreement the atrium project agreement stated that the atrium and the skyway see infra sec ii a d were being constructed in order to accomplish the appropriate integration of the new project 1ubc with the principal bank property 2ubc and 3ubc the developer and the partnership would not have made the commitment to build 1ubc had the bank not made a commitment to build the atrium in at the request of the bank the architectural plans for the atrium were modified to reduce the scale of the atrium and to address certain safety concerns d the skyway agreement the easement agreement and the space lease concurrently with the execution of the ground lease and the atrium project agreement the bank and the partnership entered into an agreement dated date whereby the partnership would construct an elevated enclosed pedestrian walkway the skyway connecting 1ubc with the atrium and the costs of construction and maintenance of the skyway would be shared equally by the partnership and the bank the skyway agreement concurrently with the execution of the ground lease the atrium project agreement and the skyway agreement the bank and the partnership entered into an agreement dated date whereby the bank granted to the partnership its successors and assigns and to the current and future fee owners of the 1ubc land and improvements thereon an easement for pedestrian access in on over and through the common areas of the bank's property on the broadway-lincoln and lincoln-sherman blocks including the atrium the easement agreement in addition under the easement agreement the partnership granted to the bank an easement for pedestrian access in on over and through the common areas of 1ubc concurrently with the execution of the ground lease the atrium project agreement the skyway agreement and the easement agreement the bank and the partnership entered into an agreement dated date whereby the bank agreed to lease approximately big_number square feet of space in 1ubc the ross and eastdil reports in prior to construction of the atrium the bank retained two real_estate consulting firms ross consulting and eastdil realty inc eastdil realty to evaluate the bank's real_estate holdings and to make recommendations regarding the possible sale of properties held by the bank ross consulting prepared a report dated date entitled working outline--real estate sale considerations the ross report which was reviewed by the committee at its meeting of date the ross report's recommendations regarding the atrium were in part as follows our recommendations flow from the assumption that ubc will construct the atrium examination of benefits therefrom either higher rents or higher purchase_price suggest that ubc should build only if legally or morally bound to ross presumes that the proposed atrium will be more valuable or will add more value to adjacent properties once completed our analysis has proceeded from the standpoint of weighing cost of waiting for completion versus benefit to be gained thereby therefore wait to sell atrium until constructed if economically possible although atrium adds to bank image it does not yield dollars to third_party_investor return guarantees for construction will complicate the deal to cleanly justify atrium construction cash_flow must be increased by million a year dollar_figure million cost capitalized by this amount is a increase over current annual ubc ii rental income whether current leases in ubc ii can be renegotiated and ubc will pay higher rents in iii on a leaseback due to atrium's presence remains to be seen higher rents are more likely to be negotiated during a possibly healthier downtown real_estate market in especially with the new atrium serving to refurbish the ubd complex as opposed to renegotiation of rents in the current tenant's market pointing at architectural plans for the atrium presume that maximum value of atrium would be realized by sale of ubc ii and iii together to same investor eastdil realty prepared a report dated date entitled report to the united banks of colorado on one two and three united bank centers and the atrium commitment the eastdil report which was reviewed by the committee at its meeting of date an observation made in the eastdil report provides construction of the atrium will inhibit the bank from selling its broadway-lincoln property as one unit this may reduce the proceeds from the sale of the bank's property on the block in the discussion of the broadway-lincoln block below we conclude the bank may be able to get more for its broadway-lincoln property if it is sold as one package rather than if two and three united bank center are sold separately if the entire block is sold as a package the purchaser can keep the existing buildings or replace them with a new 52-story office tower at some future date this assumes however that the atrium is not built if the atrium is built the remaining ground area on the bank's portion of the block is not sufficient to support a 52-story building as a result the block is no longer as attractive a development site and as such will probably not command as high a sales_price in addition the eastdil report estimated that the present_value of the net_cash_flow that would be generated by the retail operations planned for the atrium was dollar_figure million the report noted that although optimistic the present_value of the net_cash_flow that could be generated from adding big_number square feet of additional retail_space by opening the second and third floors of three united bank center to retail and building two united bank center out at the ground level to the sidewalk on all sides and on the second floor could be as high as dollar_figure million the eastdil report concluded that under the most likely scenario the net present_value of the additional income to be generated by the atrium both directly from retail_space in the atrium and indirectly from increased rents from 1ubc and 2ubc was dollar_figure million and could not alone justify the dollar_figure million cost of constructing the atrium the eastdil report however qualified that conclusion as follows notwithstanding the significant construction risk associated with building the atrium there may be reasons why the bank should consider proceeding with the project successful completion of the atrium will enhance the bank's image in the community and give it greater recognition in the region it is not realistic for us to place a dollar value on these benefits undoubtedly they are substantial and could produce a direct and positive impact on the bank's business more significantly if the bank does not complete construction of the atrium its image in the community may be tarnished it is clear that the bank has an obligation to its partners and to the tenants in one united bank center to complete construction of the atrium facility or if possible substitute another amenity to be completed at a later date if the atrium is not built the building owners run the substantial risk that at least some tenants will sue to reduce their rents or get out of their leases altogether the cost of securing a release from the atrium obligation could tip the balance in favor of completing the atrium facility the eastdil report recommended against building the atrium if the bank can obtain release from its commitment for less than dollar_figure million less whatever recognition value' the bank believes the atrium would produce the committee meeting of date at the meeting of the committee on date bank management proposed to offer 2ubc and the ground lease for sale at an asking price in the range of dollar_figure million each in its presentation to the committee management cited several reasons for selling 2ubc at that time but acknowledged that a sale now may not fully reflect the value to be added by the atrium when it is completed the committee approved the proposal to offer 2ubc and the ground lease for sale in addition management recommended that construction of the atrium proceed considerations for completing the atrium that were noted in the presentation to the committee were as follows a the atrium retains a great deal of appeal architecturally as an enhancement to the bank's image and in value added to the properties b we think our minimum cost not to build would be about dollar_figure it makes more sense to build it for dollar_figure than to not build it at a cost of dollar_figure at the meeting the committee approved the budget for the atrium construction and operation of the atrium construction of the atrium commenced in date and was completed in late however portions of the atrium were open to the public in the atrium sits on an irregularly shaped big_number square-foot parcel of land on the broadway-lincoln block and has frontage of dollar_figure feet along broadway dollar_figure feet along lincoln street and dollar_figure feet along 17th avenue the atrium covers a big_number square-foot area encompasses approximately million cubic feet of space and at its highest point is stories tall the atrium is constructed of glass steel and stone the atrium is physically attached to both 2ubc and 3ubc and is connected to 1ubc by the skyway there are pedestrian entrances to the atrium in 2ubc 3ubc and the skyway and on broadway lincoln street and 17th avenue the atrium shares its mechanical systems with 2ubc those systems are located below ground within 2ubc the basement area of the atrium is used for storage and houses a backup power generator the atrium contains space for one restaurant and retail_space for one tenant beginning about ubd owned and operated the atrium cafe which seated approximately people and ubd paid a fee to a contractor to manage the restaurant's operations beginning in ubd discontinued operating the atrium cafe and leased the space for the operation of another restaurant ubd also leased space for the operation of expresso carts beginning on date for a 10-year term the retail_space in the atrium had been leased for the operation of a russell's convenience store the russell's lease from the time of the atrium's opening in the only operating revenues generated by the atrium have been derived from the russell's lease and from the operations of the atrium cafe and other food operations those operating revenues have been less than overhead expenses maintenance utilities taxes etc resulting in net operating losses during the period through as follows year income loss overhead expense total atrium loss dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number the bank has never maintained teller windows or other banking facilities in the atrium and has never solicited new customers from within the atrium the bank has never held business meetings in the atrium and has never leased the atrium for events the bank however allows the use of the atrium by community groups an average of once a month the atrium assets cost bases and depreciation lbc constructed the atrium cafe and installed equipment furniture and fixtures therein during the years in issue lbc installed a security system and signage in the atrium the atrium security system and signage during the years in issue lbc incurred costs to construct equip and install the skyway the atrium cafe the atrium security system and signage and the remaining components of the atrium the atrium structure collectively the atrium assets the cost bases of the atrium assets placed_in_service during the years in issue as adjusted pursuant to sec_48 for the investment tax_credits claimed with respect to such assets were as follows cost bases taxable_year placed_in_service structure atrium skyway cafe atrium atrium security system and signage dollar_figure -- -- -- dollar_figure dollar_figure -- -- big_number -- big_number big_number -- dollar_figure big_number on its federal_income_tax returns for the taxable years through the ubc affiliated_group claimed depreciation_deductions with respect to the atrium assets as follows depreciation claimed taxable_year structure atrium skyway cafe atrium atrium security system and signage dollar_figure -- -- big_number dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number -- -- dollar_figure big_number big_number big_number the depreciation_deductions claimed on the atrium assets were computed on percent of the cost bases of the assets as set forth above except that after the depreciation_deductions claimed with respect to the skyway and that portion of the atrium structure placed_in_service prior to were computed on percent of the assets' cost bases the 2ubc transaction a the various agreements den-cal co den-cal was a california limited_partnership whose managing general_partner was emerik properties corp emerik by a purchase and sale agreement dated date lbc sold 2ubc and the land thereunder and an undivided 50-percent interest in motorbank i and the land thereunder to den-cal for dollar_figure the 2ubc sale agreement concurrently with the execution of the 2ubc sale agreement and other agreements lbc and den-cal entered into an agreement that required lbc to construct the atrium and the skyway and to make certain improvements to 2ubc the 2ubc construction agreement pursuant to the 2ubc construction agreement lbc and den-cal granted to each other certain reciprocal easements pertaining to the ingress and egress of pedestrians through common areas including the atrium in addition lbc agreed to maintain its improvements on the broadway-lincoln block including the atrium at its sole cost and expense lbc agreed to operate the atrium in an attractive and orderly manner and to refrain from substantially modifying the exterior design of the atrium for a 35-year period commencing on date and running through october and thereafter until lbc provides at least months' notice to den- cal of its election to terminate the atrium operating covenants the 2ubc construction agreement however allowed lbc to terminate its obligations relating to the atrium after date upon payment to den-cal of a termination fee and the occurrence of certain other conditions lbc and den-cal acknowledged 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 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 improvement sec_2ubc land 50-percent interest in motorbank i improvements 50-percent interest in motorbank i land dollar_figure big_number big_number big_number on date the ubc affiliated_group filed an amended corporate_income_tax return for its 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 basi sec_2ubc improvement sec_2ubc land 50-percent interest in motorbank i improvements dollar_figure big_number big_number 50-percent interest in motorbank i land big_number the 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 is allocable to the bases of the properties sold in the 2ubc transaction the 3ubc transaction a the various agreements by purchase and sale agreement dated date 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 dollar_figure was paid_by a note that was nonrecourse to the partners of hro however the note was secured_by a deed_of_trust to 3ubc and an irrevocable letter_of_credit in the amount of dollar_figure million by an agreement dated date lbc leased the 3ubc land to hro for a term commencing on date and running for years and months the 3ubc ground lease for the period through date the annual rent was dollar_figure plu sec_30 percent of any net rental income generated by 3ubc in excess of dollar_figure million after date the rent was to be at fair_market_value pursuant 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 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 date ubd leased back the entirety of 3ubc from hro the 3ubc space lease the 3ubc space lease had an initial term of years and months and automatically renewed for a second term running until date unless ubd elected otherwise the rent was dollar_figure a year during the initial term and dollar_figure a year during the second term the 3ubc space lease required that ubd pay all expenses and taxes maintain and repair the building insure the building and replace the building if destroyed on date lbc assumed hro's lease of approximately big_number square feet of space in 2ubc and subleased to hro approximately big_number 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 b tax treatment of the 3ubc transaction on its federal_income_tax return filed for the ubc affiliated_group reported gain on the installment basis using an amount_realized of dollar_figure 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 the ubc affiliated_group reported gain on the installment basis using an adjusted_basis of dollar_figure 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 is allocable to the basis of 3ubc the 1ubc land transaction by a purchase and sale agreement dated date 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 dollar_figure as a result of that transaction on its federal_income_tax return filed for the ubc affiliated_group reported the sale of the 1ubc land as a long-term_capital_loss using an adjusted_basis of dollar_figure 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 is allocable to the basis of 3ubc the atrium transaction a background on date lbc and broadway atrium limited bal a colorado limited_partnership consisting of arico and hines colorado formed lincoln atrium limited lal a colorado limited_partnership lbc was the general_partner of lal with a 1-percent sharing ratio based on an initial contribution of a 4848-percent undivided_interest in the atrium as described in the lal partnership_agreement bal was the sole limited_partner of lal with a 99-percent sharing ratio based on an initial contribution of a 48-percent undivided_interest in the atrium contributed to bal by arico upon acquisition from lbc see infra sec ii a b on date ubc ubd lbc lal bal arico the partnership and hines colorado entered into a number of transactions the transactions b the atrium sale agreement the transactions included an agreement titled atrium purchase sale and lease agreement dated date between ubd lbc and arico the atrium sale agreement pursuant to the atrium sale agreement lbc sold to arico an undivided 48-percent interest in the land underlying the atrium all improvements on that land all rights and interests appurtenant to that land collectively the atrium land and certain other_property together the atrium property in consideration of lbc's conveyance of the atrium property arico agreed to pay a purchase_price of dollar_figure by means of a promissory note the atrium sale agreement contained a recital stating as follows seller lbc desires to sell the atrium property to purchaser arico and purchaser desires to purchase the property from seller on the terms and conditions set forth in the agreement section dollar_figure of the atrium sale agreement states as follows the parties hereto hereby acknowledge and agree that the transaction relating to the property contemplated by this agreement is for tax purposes a purchase sale and lease transaction furthermore the parties hereby agree that following the closing each party shall report the transaction as a purchase sale and lease on their respective income_tax returns and specifically that a seller shall report the transaction as a sale on its income_tax return and shall recognize the gain_or_loss therefrom either currently or on an installment basis and b purchaser shall report the transaction as a purchase on its income_tax return the atrium sale agreement also provided that certain other agreements would be executed by the parties and related entities the atrium sale agreement and related agreements shall hereafter be referred to collectively as the atrium transaction one of those agreements was an agreement titled atrium lease dated date between lbc and lal as landlords and ubd as tenant pursuant to the atrium lease ubd agreed to lease the atrium land for a period of years commencing date and ending date the atrium lease provided that ubd would pay rent to lbc in the amount of dollar_figure a year and to lal in the following amounts dollar_figure annually from date through date dollar_figure annually from date through date and dollar_figure annually from date through date the atrium lease contained a recital stating as follows lbc and lal desire to lease their undivided interests in the atrium to tenant ubd in order to provide unified operation of the atrium and tenant desires to lease such interest from landlord for the same purpose c tax treatment by ubc of the atrium transaction on its federal_income_tax return for the taxable_year the ubc affiliated_group reported a gain on the sale of a percent interest in the atrium structure and the skyway of dollar_figure based on an amount_realized of dollar_figure a cost_basis of dollar_figure and accumulated depreciation of dollar_figure the reported amount_realized was based on a total sales_price for a 48-percent interest in the atrium structure the skyway and the land underlying the atrium of dollar_figure less dollar_figure allocated to the underlying land dollar_figure - dollar_figure dollar_figure the reported cost_basis equaled percent of the cost bases of the skyway and that part of the atrium structure placed_in_service prior to as adjusted under former sec_48 for the investment credits claimed and investment credits recaptured with respect to those assets the reported accumulated depreciation equaled percent of the depreciation claimed on the atrium structure and the skyway to the date of the reported sale no gain_or_loss was reported as realized on the sale of the underlying land because the reported amount_realized dollar_figure equaled the cost_basis of the land on its federal_income_tax returns for the taxable years through the ubc affiliated_group took deductions for rental expenses on account of the atrium lease d ubc's financial statements in the notes to ubc's affiliated financial statements for and ubc made disclosures of the atrium sale agreement and the atrium lease as a sale_and_leaseback e petitioner's responses to information document requests regarding the atrium in a letter dated date to the st paul office of the internal_revenue_service irs appeals_division appeals_division petitioner first claimed that the cost of the atrium assets should be allocated to the bases of adjoining properties the appeals_division referred petitioner's claim for cost allocation to the irs examination_division on date the irs agent assigned to review petitioner's claim the irs agent issued an information_document_request idr to petitioner question four of that idr states who is the owner of the atrium now history of the atrium ownership from till in response to that question petitioner stated in part on date lincoln building corporation sold an undivided interest in the atrium to arico america real_estate investment_company arico arico contributed its undivided interest in the atrium to broadway atrium limited broadway broadway subsequently contributed the undivided_interest in the atrium to lincoln atrium limited lincoln building corporation contributed an additional undivided_interest in the atrium to lincoln atrium limited as its general_partner consequently ownership of the atrium after the sale on date was as follows - lincoln building corporation - lincoln atrium limited whose ownership is - broadway atrium limited - lincoln building corporation the ownership of the atrium did not change during the period between date and date on date the irs agent issued another idr to petitioner requesting documentation pertaining to the sale of an interest in the atrium referred to in petitioner's response to the first idr petitioner's response to the second idr referred to the transaction as a sale of the interest in the atrium b the atrium assets allocation of the cost sec_1 issue the issue is whether petitioner may allocate the cost of the atrium assets to the bases of other properties that were held by the bank if we decide that issue for petitioner we must decide the nature and extent of the proper allocation arguments of the parties relying on a line of cases that includes 31_tc_238 and 40_tc_689 affd 345_f2d_933 5th cir the developer line of cases petitioner argues that it is entitled under sec_1016 to allocate the cost of the atrium assets to the bases of properties that benefited from the atrium petitioner claims that t he bank constructed the atrium for the purpose of creating an office building complex with the expectation that the buildings within the complex would increase in value and that the atrium as a stand-alone asset has negative value petitioner asserts that an allocation of the costs of the atrium assets in proportion to the relative fair market values of the benefited properties as of date the close of the year in which the atrium was completed is equitable and would result in a proper adjustment under sec_1016 petitioner proposes the following allocation as pertinent to this case sec_1011 provides that the adjusted_basis for determining gain_or_loss from the sale_or_other_disposition of property is the cost of such property see sec_1012 adjusted as provided in sec_1016 sec_1016 in part provides that proper adjustment is to be made for expenditures receipts losses or other items properly chargeable to capital_account sec_1_1016-2 income_tax regs in part states the cost or other basis shall be properly adjusted for any expenditure receipt loss or other item properly chargeable to capital_account including the cost of improvements and betterments made to the property property 1ubc land 2ubc 3ubc 3ubc land cost allocation dollar_figure big_number big_number big_number respondent argues that sec_1012 provides that the basis_of_property is the cost of such property and that the amount_paid for a given asset becomes the asset's cost_basis and cannot be added to or combined with the basis of other assets respondent however acknowledges the developer line of cases but asserts that those cases recognize a narrow exception to the general_rule respondent claims that the present case is factually distinguishable from the developer line of cases and that the principles of those cases have never been applied outside the narrow factual context in which those cases arose in the alternative respondent argues that if the developer line of cases have relevance beyond their unique facts the present case fails to meet the requirements set forth in those cases lastly respondent rejects petitioner's proposed allocation of the cost of the atrium assets based on the fair market values of the adjoining properties because those values bear no necessary correlation to the economic benefits that were anticipated by the bank from the construction of the atrium according to respondent an allocation if any must be based on the bank's purpose for building the atrium as of february of when it made the initial commitment to build the atrium or at the latest october of when it made the final_decision to proceed with the atrium's construction analysis a the developer line of cases in 22_tc_1283 the taxpayer transferred approximately acres of land and certain improvements located thereon to the tuscon country club the club with the proceeds of a loan from the taxpayer the club agreed to construct on the transferred property a first- class country club that included an 18-hole golf course club house and recreational facilities the taxpayer anticipated that the construction of the country club would enhance the value of the surrounding property which the taxpayer subdivided into lots for sale relying on 118_f2d_112 9th cir affg in part and revg in part a memorandum opinion of the board the taxpayer argued that the cost of the land transferred to the club should be added to the cost of the lots sold the court distinguished 23_bta_731 despite in that case the court_of_appeals for the ninth circuit affirmed the board_of tax appeals' determination that a taxpayer should be allowed to deduct from the sales proceeds of certain lots expenditures made for streets drives curves and other improvements which benefited those lots in that case the board_of_tax_appeals rejected the taxpayer's contention that no part of the cost of construction and development of an island subdivision should be allocated to a continued the possibility that the transferred land could revert to the taxpayer upon the occurrence of certain contingencies the court citing kentucky land gas oil co v commissioner 2_bta_838 held that the basis of the lots included the cost of the property transferred to the club because the basic purpose of petitioner in transferring the land was to bring about the construction of a country club so as to induce people to buy nearby lots country club estates inc v commissioner supra pincite in 26_tc_30 affd per curiam 244_f2d_75 6th cir a taxpayer in the business of developing and selling real_estate argued that the cost of a water supply pumping system that provided water service continued large interior area of the island that was reserved for years later extended an additional years as a playground and recreational center for_the_use_of lot purchasers the interior area was not permanently and irrevocably dedicated to the public but may later be sold by petitioner the possibility of gain has only been postponed it is unlike the area used for public streets which is permanently beyond the possibility of sale and gain the cost of which must be absorbed in the salable lots 23_bta_731 in kentucky land gas oil co v commissioner 2_bta_5 the taxpayer acquired a tract of oil land which the taxpayer subdivided into lots the taxpayer drilled four wells on the subdivision the board_of_tax_appeals the board held that the cost of drilling one well only was an additional cost of the lots and a proper charge against the sale price of the lots sold because the taxpayer was bound to drill but one well under the covenants in the deeds of conveyance id pincite to a subdivision should be added to the cost of the lots in the subdivision this court stated as follows the difficulty with petitioner's contention is that unlike the taxpayer in country club estates inc supra the petitioner has not given up any property in order to sell its lots for the funds it expended the petitioner acquired a water supply system which it owned and operated during the taxable years and thereafter it is true that the system has not been operated at a profit due perhaps to the small number of houses which have been constructed at the colony and it also may be true as petitioner contends that the pumping station may be abandoned at some time in the future when the facilities of the lexington water company reach the subdivision these circumstances however do not alter the fact that the petitioner retained full ownership and control of the water supply system during the taxable years and that it did not part with the property for the benefit of the subdivision lots because of this retention of ownership country club estates inc supra is distinguishable id pincite this court in estate of collins v commissioner t c pincite distilled the decisions in country club estates inc v commissioner supra and colony inc v commissioner supra and announced the following test a careful consideration of the cases above cited indicates that if a person engaged in the business of developing and exploiting a real_estate subdivision constructs a facility thereon for the basic purpose of inducing people to buy lots therein the cost of such construction is properly a part of the cost_basis of the lots even though the subdivider retains tenuous rights without practical value to the facility constructed such as a contingent reversion but if the subdivider retains full ownership and control of the facility and does not part with the property ie the facility constructed for the benefit of the subdivision lots then the cost of such facility is not properly a part of the cost_basis of the lots the rule_of estate of collins has been applied in subsequent cases in willow terrace dev co v commissioner t c pincite this court stated as we read the collins case the pivotal consideration is whether the basic purpose for constructing such utilities systems in real_estate subdivisions is to induce people to buy lots in such subdivisions it is a question of fact and in resolving it the profit and loss record of the operating company must of course be considered but this does not mean that the presence of some profit will always be fatal to the taxpayers's case in addition this court in 66_tc_718 stated as follows the critical question is whether petitioner intended to hold the facilities to realize a return on his capital from business operations to recover his capital from a future sale or some combination of the the court_of_appeals for the fifth circuit stated as follows the problem presented by these cases is whether deduction or capitalization of such costs will more accurately reflect the economic realities of the situation from the standpoint of the subdivider we cannot accept the rule advocated by the commissioner which in effect allows deduction only when the costs can be recovered in no other manner some relevant factors to be considered in determining the proper tax treatment of the costs of such facilities are whether they were essential to the sale of the lots or houses whether the purpose or intent of the subdivider in constructing them was to sell lots or to make an independent investment in activity ancillary to the sale of lots or houses whether and the extent to which the facilities are dedicated to the homeowners what rights and of what value are retained by the subdivider and the likelihood of recovery_of the costs through subsequent sale these factors were considered in collins and the holding centered on the basic purpose test as modified by ownership 345_f2d_933 5th cir two or whether on the other hand he so encumbered his property with rights running to the property owners regardless of who retained nominal title that he in substance disposed of these facilities intending to recover his capital and derive a return of his investment through the sale of the lotsdollar_figure 10actually in most of the cases the asset involved is encumbered with rights running to the property owners which significantly diminish the value of an asset which nevertheless retains substantial value this diminution resulting from restrictions benefiting the adjacent lots represents a pro tanto disposal with each lot however there is no basis in the decided cases and certainly none in the record before us for making an allocation based on the rights disposed of and the property retained see also 48_tc_900 dahling v commissioner tcmemo_1988_430 bryce's mountain resort inc v commissioner tcmemo_1985_293 montclair dev co v commissioner tcmemo_1966_200 b the principles of the developer line of cases the developer line of cases all involve real_estate developers that seek to allocate the cost of certain common improvements to the bases of residential lots held_for_sale respondent suggests that the principles of the developer line of cases are applicable only in that context because i n that context both the purpose for incurring the costs and the properties benefitted thereby are readily identifiable an examination of the principles underlying the developer line of cases however does not suggest that those principles are restricted to any particular factual context or that difficulty in application justifies nonadherence we need not decide whether those principles apply in every case it is sufficient that we decide today that no rule_of law proscribes their application to the case at bar the developer line of cases addresses the basic problem of what constitutes a proper adjustment to the basis_of_property in the context of a common improvement that benefits lots in a residential subdivision those cases focus on the common improvement and not directly on the lots held_for_sale if an analysis of the common improvement indicates that the basic purpose of the taxpayer in constructing the common improvement is to induce sales of the lots and the taxpayer does not retain too much ownership and control of the common improvement then the lots held_for_sale are deemed to include the allocable share of the cost of the common improvement the rationale of the developer line of cases is that when the basic purpose of property is the enhancement of other properties to induce their sale and such property does not have in substance an independent existence total cost_recovery for such property should be dependent on sale of the benefited properties there is no principled basis here to distinguish between residential lots and the office buildings in question in the application of that logic in sum we believe that the logic underlying the developer line of cases is applicable outside the narrow context of allocating the cost of common improvements to the bases of residential lots held_for_sale and therefore we shall determine whether petitioner has satisfied the requirements set forth in those cases c application of the basic purpose test the requirement that the basic purpose of a taxpayer in constructing a common improvement be to induce sales of benefited properties serves the purpose of justifying total cost_recovery of the common improvement based on sales of the benefited properties cf noell v commissioner supra pincite ndollar_figure petitioner apparently acknowledges that a pivotal question is whether the basic purpose of the bank in constructing the atrium was to induce sales of the bank's adjoining properties that question is one of fact which we shall answer upon consideration of all the facts and circumstances see 40_tc_689 petitioner asserts the bank constructed the atrium for the purpose of creating an office building complex with the expectation that the buildings within the complex would increase in value that purpose alone however without an intention to such total basis recovery is a decided advantage not generally enjoyed by a taxpayer who disposes of less than his complete interest in property see eg sec_1_61-6 income_tax regs when a part of a larger property is sold the cost or other basis of the entire property shall be equitably apportioned among the several parts and the gain realized or loss sustained on the part of the entire property sold is the difference between the selling_price and the cost or other basis allocated to such part consider that a lessor of income producing property must take advance rentals into gross_income in the year of receipt sec_1_61-8 income_tax regs without any increased depreciation deduction in that year induce sales of the benefited properties is insufficient under the developer line of cases although the record indicates that the bank was aware that construction of the atrium would enhance the value of the bank's adjoining properties we believe that the basic purpose of the bank in constructing the atrium was not the enhancement of the adjoining properties so as to induce sales of those properties but rather the resolution of certain design issues and the enhancement of the bank's image value enhancement of the bank's adjoining properties was simply a beneficial consequence of that basic purpose on date when architectural plans for the project were presented to the committee for the first time construction of the atrium was proposed as a means of resolving two major design issues counteracting the off-broadway location of the proposed tower and creating a center consisting of the proposed tower and the existing bank facilities by date when construction of the proposed atrium was approved the bank had the benefit of both the harrison price and planning dynamics reports both reports recommended construction of the proposed atrium based on three factors increased rental it appears that petitioner would likely not dispute that assertion in its brief petitioner states a lthough the impetus for building the atrium came from the construction of 1ubc including the need for a front door on broadway' the bank expected that 2ubc - the largest building to which the atrium is physically attached - would be the beneficiary of the largest value increase rates of adjoining properties ability to counteract the off- broadway location of the proposed tower and enhancement of the bank's image which would be reflected in a greater market share reflective of those reports the minutes of the committee meeting on date in part provide bank management feels very positive about the project the general feeling of the bank is in favor of the enclosed atrium to allow the bank to achieve a larger market share the atrium should create a major center making united bank center a nationally notable building complex at that time however there were no immediate plans to sell any of the adjoining properties and thus there is simply no basis to find that the bank approved construction of the proposed atrium so as to induce sales of those properties petitioner proposes the following finding of fact during while the bank was negotiating and planning the construction of 1ubc and the atrium the bank gave consideration to selling some of its properties in united bank center petitioner apparently supports that finding only with the following testimony of mr richard a kirk president of ubd in counsel for petitioner in the time frame to before the construction of the atrium commenced did lbc consider selling any of its properties in united bank center mr kirk yes counsel do you know which properties were under consideration for sale mr kirk we would--we had a lot of real_estate as is evidenced here and i think in those days we were coming to a conclusion that that wasn't necessarily the best place for us to have our monies continued in addition when the budget for construction of the proposed atrium was approved in the bank was advised by both ross consulting and eastdil realty that the cost of construction would far exceed any increase in values to the adjoining properties indeed the eastdil report noted that c onstruction of the atrium will inhibit the bank from selling its broadway-lincoln property as one unit this may reduce the proceeds from the sale of the bank's property on the block emphasis omitted ross consulting recommended that ubc should build only if legally or morally' bound to and eastdil realty recommended against building the atrium if the bank can obtain release from its commitment for less than dollar_figure million less whatever recognition value' the bank believes the atrium would continued you know we could put our money to work in lots of different ways and so i think that it is fair to say that around that time we started--we were dealing more and more with real_estate and we were thinking more and more about it is it logical do we need it all should we move some parcel i can't remember exactly which we were talking about at the time but it is definitely my recollection that we were you know considering the validity of holding all of this real_estate the minutes of the committee meeting on date provide the earliest documentary_evidence that the bank considered sales of its real_estate it is the bank's intention to investigate the possibility of selling various elements of our real_property as a means of generating additional capital produce at the committee meeting of date when the budget for the atrium was approved considerations for completing the atrium that were noted in the presentation to the committee were as follows a the atrium retains a great deal of appeal architecturally as an enhancement to the bank's image and in value added to the properties b we think our minimum cost not to build would be about dollar_figure it makes more sense to build it for dollar_figure than to not build it at a cost of dollar_figure we believe that the bank initially approved construction of the proposed atrium in and entered into the commitment to build in to address certain design issues and to enhance the bank's image enhancement of value in the adjoining properties was an ancillary consideration and we so find we believe that the bank's motivation derived in significant part from the fact that the developer and the partnership would not have made a commitment to build 1ubc had the bank not made a commitment to build the atrium when the budget for the atrium was approved in enhancement of value of the adjoining properties was simply one of many considerations that led to the budget's approval lastly the bank was aware that any value to be added to the property by the construction of the atrium would not be fully realized in a sale prior to completion of the atrium nevertheless the bank sold 2ubc in in sum upon consideration of all the facts and circumstances we believe that the basic purpose of the atrium was not the enhancement of the adjoining properties so as to induce sales of those properties and we so finddollar_figure conclusion our finding with respect to the bank's basic purpose renders an analysis of the extent of the bank's retained_interest in the atrium unnecessary in any event we believe that such an analysis would support our conclusion that cost_recovery for the atrium should be independent of sales of the adjoining properties although both the easements allowing ingress and egress of pedestrians and the bank's obligation to maintain and operate the atrium at its sole cost and expense for a period of years restricted the bank's ownership and control of the atrium such restrictions did not prevent the bank from entering into a the fact that the atrium has consistently generated net operating losses does not change our conclusion if the presence of some profit is not always fatal to a taxpayer's case we believe then that the absence of profit is also not dispositive see 40_tc_689 affd 345_f2d_933 5th cir 26_tc_30 affd per curiam 244_f2d_75 6th cir bryce's mountain resort inc v commissioner tcmemo_1985_293 montclair dev co v commissioner tcmemo_1966_200 but more importantly the atrium's operating loss figures do not consider the benefits if any derived by the bank when it entered into the commitment to build the atrium in as part of an integrated series of agreements we are unclear whether any possible benefits derived by the bank as part of those agreements eg a favorable lease agreement in 1ubc or enhanced bank image derived from a prominent complex bearing the bank's name would skew the significance of those loss figures therefore we have little confidence in the import of those figures series of transactions that included the sale of an undivided 48-percent interest in the atrium to arico for dollar_figure million in date petitioner now challenges the form of that transaction and claims that the substance of the transaction constituted a financing_arrangement see infra sec ii d although the fact that a taxpayer retains a salable interest in a common improvement is not dispositive of the analysis in the developer line of cases see eg 40_tc_689 the date transaction strongly indicates that the bank did not intend to recover its investment in the atrium through a sale of the adjoining properties lastly we note that petitioner's reliance on the developer line of cases is the sole reason that the basic purpose test was applied in this case nothing in those cases precluded petitioner from arguing that interests in the atrium were conveyed in conjunction with sales of its adjoining properties and that an equitable allocation of the cost of the atrium assets pursuant to sec_1_61-6 income_tax regs should be made to those interests to properly calculate gain_or_loss on the conveyance of those interests see eg 71_tc_650 when parts of a larger property are sold an equitable_apportionment of basis among the several parts is required for a proper calculation of gain sec_1_61-6 income_tax regs but that principle is not limited to the severance of realty into two or more parcels but applies with respect to parts of the bundle of rights comprising property including easements that argument however was not made by petitioner and we need not address it any further c the atrium assets loss deduction under sec_165 in a footnote in petitioner's brief petitioner relying on 950_f2d_209 5th cir argues that it is entitled to a loss deduction under sec_165 for equal to the cost of the atrium assets because although the atrium was not abandoned in it was worthless petitioner asserts the atrium was completed during and an independent appraisal has concluded that the atrium had a negative value ie was worthless as of date the proper year of deduction under sec_165 is as that is the year in which the atrium was completed ie became a closed transaction in response respondent argues that petitioner's interpretation of echols v commissioner supra is inconsistent with authority of this court and in any event the atrium's worthlessness has not been established sec_165 allows a deduction for any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise to be allowable a loss must be evidenced by closed and completed transactions fixed by identifiable events and actually sustained during the taxable_year sec_1_165-1 d income_tax regs in echols v commissioner supra pincite the court_of_appeals for the fifth circuit stated the test for worthlessness is a combination of subjective and objective indicia a subjective determination by the taxpayer of the fact and the year of worthlessness to him and the existence of objective factors reflecting completed transaction s and identifiable_event s in the year in question--not limited however to transactions and events that rise to the level of divestiture of title or legal abandonment nothing in that opinion however supports petitioner's apparent assertion that completion of construction of the atrium alone provides sufficient objective evidence of the atrium's worthlessness more importantly petitioner has failed to establish a loss equal to the cost of the atrium assets pursuant to sec_1_165-1 and d income_tax regs and we so find therefore petitioner is not entitled to a deduction under sec_165 d the atrium transaction disavowal of form_1 issue the issue is whether petitioner may disavow the form of the atrium transaction if we decide that issue for petitioner we must determine the substance of the atrium transaction arguments of the parties relying primarily on 308_us_252 and 435_us_561 petitioner argues that the substance of the atrium transaction not its form should govern for federal_income_tax purposes petitioner concedes that the atrium transaction was in form a sale by lbc of a 48-percent interest in the atrium property to arico for dollar_figure and a lease of the atrium land by ubd from lbc and lal following various transfers of interests in the atrium property to lal petitioner argues however that as a matter of economic_substance the atrium transaction was a loan from arico to the bank in addition petitioner argues that in cases where a taxpayer challenges the form of a sale-leaseback transaction no higher burden_of_proof applies and therefore petitioner need only persuade the court of the substance of the atrium transaction by the usual preponderance_of_the_evidence in respondent's brief respondent presents the issue as follows the petitioner has taken the position that the costs of constructing the atrium should have been allocated among the adjoining properties rather than to the atrium itself accordingly the notice_of_deficiency as a protective measure reduced the adjusted_basis of the 48-percent interest in the atrium sold by lbc to zero thereby increasing lbc's gain on the sale by dollar_figure million the petitioner now claims that no gain_or_loss should have been recognized on the atrium sale leaseback because the transaction was merely a financing_arrangement it is the respondent's position that the transaction was a sale leaseback in substance as well as form it is also the respondent's position however that the petitioner is precluded from disavowing the form of the transaction in making the latter argument respondent relies primarily on 378_f2d_771 3d cir vacating and remanding 44_tc_549 294_f2d_750 5th cir revg and remanding 31_tc_918 99_tc_561 supplementing tcmemo_1992_325 87_tc_1417 analysis a introduction the terms of the various agreements that constitute the atrium transaction are unambiguous and we so find indeed petitioner does not argue to the contrary rather petitioner contends that t he issue in this case is the characterization for federal_income_tax purposes of a transaction that is cast in form as a sale-leaseback but in which the rights created are those of a borrower and a lender this court must determine as a threshold matter however whether petitioner may disavow the form of the atrium transaction b the danielson_rule does not apply in commissioner v danielson supra the court_of_appeals for the third circuit held that certain taxpayers were precluded from challenging for tax purposes the terms of certain agreements that made purchase_price allocations to covenants not to compete the court enunciated the so-called danielson_rule a party can challenge the tax consequences of his agreement as construed by the commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake undue influence fraud duress etc id pincite even assuming arguendo that the danielson_rule applies in cases where a taxpayer attempts to disavow the form of a sale-leaseback transaction this court would not apply the rule in this particular case this court has declined to adopt the danielson_rule see eg 87_tc_178 ndollar_figure 87_tc_1046 affd without published opinion 833_f2d_303 3d cir and does not apply the rule unless appeal in the particular case lies to a court_of_appeals that has explicitly adopted the rule see 102_tc_406 the parties agree that appeal in this case will lie to the court_of_appeals for the eighth circuit the position of that court with respect to the danielson_rule is unclear see id pincite discussing 897_f2d_334 8th cir affg in part revg in part and remanding t c memo and therefore we shall not apply the danielson_rule in this case c respondent’s weinert rule respondent argues that apart from the danielson_rule a rule that originated in 294_f2d_750 5th cir revg and remanding 31_tc_918 precludes petitioner from disavowing the form of the atrium sale leaseback because the taxpayer's actions do not reflect an honest and consistent respect for the transaction's putative we decline respondent's invitation to reconsider our position and to adopt the rule substance in estate of weinert the court_of_appeals for the fifth circuit the fifth circuit stated resort to substance is not a right reserved for the commissioner's exclusive benefit to use or not to use--depending on the amount of the tax to be realized the taxpayer too has a right to assert the priority of substance--at least in a case where his tax reporting and actions show an honest and consistent respect for the substance of a transaction id pincite respondent principally cites 87_tc_1417 as demonstrating the circumstances in which this court shall apply what respondent calls the weinert rule respondent's weinert rule petitioner argues that respondent's weinert rule is a misrepresentation of the holding in weinert we believe that respondent's weinert rule is an offshoot of the fifth circuit's statement in estate of weinert the fifth circuit did not state that a taxpayer can argue the priority of substance only if his tax reporting and other actions show an honest and consistent respect for the substance of a transaction but rather that a taxpayer can argue substance over form at least when those conditions are met in other words the fifth circuit statement does not make honest and consistent respect for the substance of a transaction in tax reporting and other actions the sine qua non of a taxpayer's right to disavow the form of a transaction we note however that this court in illinois power co v commissioner supra applied respondent's weinert rule and did not allow a taxpayer to disavow the form of a gift transaction because for tax reporting and other purposes the taxpayer consistently treated the transfer as a gift id pincite this court pursuant to the doctrine enunciated in 54_tc_742 affd 445_f2d_985 10th cir followed what it perceived to be the principles established in 756_f2d_569 7th cir nothing in comdisco however makes honest and consistent respect for the substance of a transaction in tax reporting and other actions a condition_precedent to a taxpayer’s right to disavow the form of a transaction indeed the court_of_appeals for the seventh circuit quoted estate of weinert v commissioner supra pincite and applied the reasoning and rule expressed in that case without expanding or altering the fifth circuit's statement comdisco inc v united_states supra pincite if honest and consistent respect for the substance of a transaction were a precondition to a taxpayer’s disavowing the form of a transaction the danielson_rule or our own strong_proof standard see eg meredith corp subs v commissioner supra pincite strong_proof required to show that an allocation of consideration is other than that specified in a contract would be beside the point in any case where such condition was not met we have not however gone that far but have listed the taxpayer’s honest and consistent respect for the substance of a transaction in tax reporting and other actions as but one of at least four factors to be considered in determining whether a taxpayer may disavow the form he has chosen estate of durkin v commissioner t c pincite explaining application of danielson_rule and strong_proof standard to facts of that case in any case in which the taxpayer fails to show an honest and consistent respect for the substance of a transaction it may be difficult if not impossible for the taxpayer to convince a court that he should be allowed to disavow his chosen form but we cannot say that as a rule_of law he is precluded from tryingdollar_figure respondent’s weinert rule is too broad the taxpayer’s lack of an honest and consistent respect for the substance of a transaction may be an important indeed even decisive factor in determining that the taxpayer cannot disavow his chosen form it is not however a sufficient factor see infra sec ii d e d estate of durkin v commissioner in 90_tc_405 affd 896_f2d_580 d c cir we set forth two grounds for not allowing the taxpayer to disavow the form of transaction reported on its original income_tax return and financial reports the first more procedural ground was that the taxpayer’s tax reporting and other actions did not show an honest and consistent respect for what at trial it claimed to be the substance of the transaction with respect to the first ground we said that we were disinclined to recharacterize the transaction by hindsight the second ground m ore importantly was that the form of the transaction corresponded to its substance the court_of_appeals for the district of columbia circuit affirmed our decision on the basis of our substantive analysis federal natl mortgage association v commissioner f 2d pincite had the first ground been sufficient we would have had no reason to discuss the second more important ground respondent cites estate of durkin v commissioner supra pincite and argues that this court looked to three factors to determine whether a taxpayer could disavow the form of its transaction whether the taxpayer seeks to disavow its own return treatment of the transaction whether following the rationale of weinert the taxpayer’s tax reporting and actions show and sic honest and consistent respect for the transaction whether the taxpayer is unilaterally attempting to have the transaction treated differently after it has been challenged we disagree with respondent that the rationale of estate of durkin can be so easily distilled in any event we need not rely on estate of durkin because of the peculiar facts of this case e petitioner may not disavow the form of the atrium transaction this court has previously stated that a taxpayer may have less freedom than the commissioner to ignore the transactional form that he has adopted 59_tc_760 n that freedom is further curtailed if a taxpayer attempts to abandon its tax_return treatment of a transaction see eg 296_f2d_61 2d cir affg per curiam tcmemo_1960_106 200_f2d_97 9th cir see also supra secs in maletis the court_of_appeals for the ninth circuit stated as follows continued ii d c and d discussing 294_f2d_750 5th cir and estate of durkin v commissioner supra respectively furthermore when a taxpayer seeks to disavow its own tax_return treatment of a transaction by asserting the priority of substance only after the commissioner raises questions with respect thereto this court need not entertain the taxpayer's assertion of the priority of substance see eg 57_tc_164 affd per curiam 496_f2d_1179 9th cir in legg the taxpayers sold an apple orchard for dollar_figure received a downpayment of dollar_figure and an installment_obligation and elected to report the transaction on the installment_method id pincite contemporaneously with that transaction the taxpayers executed an irrevocable_trust funded with the installment_obligation id pincite the commissioner asserted that the transfer of the installment_obligation to the trust was a disposition giving rise to gain id the taxpayers argued to continued the bureau of internal revenue with the tremendous load it carries must necessarily rely in the vast majority of cases on what the taxpayer asserts to be fact the burden is on the taxpayer to see to it that the form of business he has created for tax purposes and has asserted in his returns to be valid is in fact not a sham or unreal if in fact it is unreal then it is not he but the commissioner who should have the sole power to sustain or disregard the effect of the fiction since otherwise the opportunities for manipulation of taxes are practically unchecked 200_f2d_97 9th cir the court that since the sale and the creation of the trust transpired simultaneously the transaction in substance was a sale consisting of a dollar_figure downpayment and a lifetime remuneration of dollar_figure per year which transaction would not result in gain on the disposition of an installment_obligation id pincite in response this court stated as follows the petitioners' first contention has little or no justification in light of the fact that the form of the transaction was contemplated and carried out by the petitioners it was their decision to report the sale on the installment basis a taxpayer cannot elect a specific course of action and then when finding himself in an adverse situation extricate himself by applying the age-old theory of substance over form id similarly in this case petitioner structured the atrium transaction as a sale by lbc of a 48-percent interest in the atrium property to arico for dollar_figure and a lease of the atrium land by ubd from lbc and lal on its federal_income_tax return for the taxable_year the ubc affiliated_group reported a gain of dollar_figure on that sale and on its federal_income_tax returns for the taxable years through the ubc affiliated_group took deductions for rental expenses on account of the atrium lease in addition after the depreciation_deductions claimed with respect to the skyway and that portion of the atrium structure placed_in_service prior to were computed on percent of the assets' cost bases as late as date petitioner did not disavow its tax_return treatment of the atrium transaction indeed petitioner apparently does not dispute respondent's assertion that petitioner claimed that the substance of the atrium transaction was something other than its form only after respondent as a protective measure in response to the basis allocation argument set forth in supra section ii b reduced to zero the adjusted_basis of the 48-percent interest in the atrium sold by lbcdollar_figure under these circumstances we shall not allow petitioner to disavow the form and tax treatment of the atrium transaction essentially the timing of petitioner's recharacterization of the atrium transaction gives this court very little confidence in embarking upon a burdensome search for the substance of that transaction although there exists the possibility that our approach may forsake the true substance of the atrium transaction that is a risk that this court can bear in light of petitioner's actions to allow petitioner to assert the priority of substance in this case would only embroil this court in petitioner's post-transactional tax planning we decline that invitation conclusion petitioner may not disavow the form of the atrium transaction our resolution of the issue presented in supra sec ii b leaves respondent without the need to make any protective adjustment with respect to the adjusted_basis of the 48-percent interest in the atrium sold by lbc we assume therefore that respondent would seek only to maintain the ubc affiliated group's treatment of the atrium transaction as reported on its tax returns iii corporate_minimum_tax issue a introduction on its consolidated_returns since at least and continuing through the ubc affiliated_group computed its tax under sec_56 if any based on a consolidated computation of that tax ubc's method see infra sec iii c in the notice_of_deficiency for docket no respondent accepted and used ubc's method in computing the tax under sec_56 the corporate_minimum_tax for the ubc affiliated group's and taxable years in the petition filed in docket no petitioner claims that it is entitled to calculate the corporate_minimum_tax for the ubc affiliated group's and taxable years on a separate_return basis petitioner's method see infra sec iii c and claims refunds for those years on that basis b the corporate_minimum_tax provisions the corporate_minimum_tax provisions as in effect for the years in issue are sec_56 sec_57 and sec_58 and the regulations thereunder sec_56 provides in part as follows sec_56 adjustments in computing alternative_minimum_taxable_income a general_rule --in addition to the other taxes imposed by chapter one of subtitle a of the code there is hereby imposed for each taxable_year with respect to the income of every corporation a tax it should be noted that during those years in issue no member of the ubc affiliated_group actually filed separate tax returns equal to percent of the amount by which the sum of the items of tax preference exceeds the greater of-- dollar_figure or the regular_tax_deduction for the taxable_year as determined under subsection c c regular_tax_deduction defined --for purposes of this section the term regular_tax_deduction means an amount equal to the taxes imposed by chapter one of subtitle a of the code for the taxable_year computed without regard to this part and without regard to the taxes imposed by sec_531 and sec_541 reduced by the sum of the credits allowable under subparts a b and d of part iv c the two method sec_1 ubc's method under ubc's method which respondent contends is correct each member of the ubc affiliated_group first determines its separate items of tax preference pursuant to sec_57 then each member's separate items of tax preference are aggregated to establish the ubc affiliated group's total for items of tax preference ubc's total preferences that total is reduced by the ubc affiliated group's regular_tax_liability the amount that should appear on schedule j of its return ubc's consolidated regular_tax or if there is no such liability the minimum_tax exemptiondollar_figure the percent minimum_tax rate of sec_56 is items of tax preference are set forth in sec_57 the quoted provisions were in effect for the ubc affiliated group's taxable_year for purposes of this case prior versions of sec_56 in effect for and were not materially different from the version this sentence reflects a stipulation of the parties we continued then applied to the excess if any of ubc's total preferences over ubc's consolidated regular_tax or the exemption_amount the resulting figure is the ubc affiliated group's corporate_minimum_tax petitioner's method under petitioner's method each member of the ubc affiliated_group first determines its separate items of tax preference pursuant to sec_57 then each member's separate regular_tax_deduction under sec_56 separate regular_tax_deduction is determined by using the method of allocation provided in sec_1552 and sec_1_1502-33 income_tax regs the d allocation dollar_figure the 15-percent minimum_tax rate of section continued believe that the minimum_tax exemption_amount would be used if the consolidated regular_tax were greater than zero and less than dollar_figure sec_1552 provides that pursuant to regulations prescribed by the secretary the earnings_and_profits of each member_of_an_affiliated_group see sec_1504 required to be included in a consolidated_return for such group filed for a taxable_year shall be determined by allocating the tax_liability of the group for such year among the members of the group in accordance with one of several methods set forth in sec_1552 through which method must be elected in the first consolidated_return filed by the group beginning with its taxable_year the ubc affiliated_group elected to allocate its consolidated regular_tax_liability among its members in accordance with sec_1552 and sec_1_1502-33 income_tax regs sec_1552 provides the tax_liability of the group shall be allocated to the several members of the group on the basis of the percentage of the total_tax which the tax of such member if computed on a separate_return would bear to the total amount of the taxes for all members of the group so computed continued a is then applied to the excess of each member's separate items of tax preference over the amount if any determined under the d allocation each member's resulting minimum_tax if any is then aggregated to derive the ubc affiliated group's corporate_minimum_tax under petitioner's method the aggregate of the members' separate regular_tax deductions which will be utilized by the ubc affiliated_group to reduce items of tax preference subject_to the 15-percent minimum_tax will not equal the consolidated regular_tax_liability of the group that lack of equivalence is a result of the following loss companies are not allocated any portion of the consolidated regular_tax_liability which results continued sec_1_1502-33 income_tax regs provides ii a the tax_liability of the group as determined under paragraph b of sec_1_1552-1 shall be allocated to the members in accordance with paragraph a or of sec_1_1552-1 whichever is applicable b an additional_amount shall be allocated to each member equal to a fixed percentage which does not exceed percent of the excess if any of the separate_return_tax_liability of such member for the taxable_year computed as provided in paragraph a ii of sec_1_1552-1 over the tax_liability allocated to such member in accordance with a of this subdivision ii and c the total of any additional_amounts allocated pursuant to b of this subdivision ii including amounts allocated as a result of a carryback shall be credited to the earnings_and_profits of those members which had items of income deductions or credits to which such total is attributable pursuant to a consistent method which fairly reflects such items of income deductions or credits and which is substantiated by specific records maintained by the group for such purpose in no separate regular_tax_deduction for such members with separately_computed_items of tax preference the separately_computed_items of tax preference are not aggregated on a consolidated basis and the aggregate amount allocated under the d allocation to members with positive taxable_income may exceed the consolidated regular_tax_liability of the groupdollar_figure d analysi sec_1 issue the issue is whether petitioner is entitled to refunds of payments made to satisfy the ubc affiliated group's corporate_minimum_tax liabilities for the years in issue that description of the consequence of petitioner’s method is based on a stipulation of the parties we find it somewhat confusing we believe that the primary reason that the aggregate of the amounts allocated under the d allocation may exceed the consolidated regular_tax_liability of the group is sec_1_1502-33 income_tax regs which allows for an allocation of additional_amounts no greater than the excess of the separate_return_tax_liability over the amount allocated in accordance with the ratio of separate_return_tax_liability to the aggregate thereof for the group for example assume the following the consolidated_group comprises a b and c a has taxable_income of dollar_figure b has taxable_income of dollar_figure and c has a loss of dollar_figure and the regular_tax_rate i sec_35 percent the consolidated regular_tax_liability would equal dollar_figure percent of dollar_figure consolidated regular taxable_income under petitioner's method both a and b would be allocated percent of that amount because the ratio under sec_1 d ii a income_tax regs for both is dollar_figure dollar_figure see sec_1_1552-1 income_tax regs we assume that the separate_return_tax_liability of the loss_corporation is zero if negative then a b's ratios would only increase resulting in greater initial allocations to a b anyway thus both a and b are allocated dollar_figure but sec_1_1502-33 income_tax regs allows an allocation of an additional_amount that is no greater than dollar_figure dollar_figure - dollar_figure which could result in a total allocation to a b of dollar_figure seventy dollars is greater than the consolidated regular_tax_liability of dollar_figure arguments of the parties relying principally on 77_tc_1149 petitioner argues that in the absence of any contrary guidance in the code or regulations thereunder sec_56 imposes a minimum_tax on every corporation and that the ubc affiliated_group must therefore compute its corporate_minimum_tax by aggregating the tax imposed under sec_56 on each member of the group petitioner argues that in calculating each member's separate corporate_minimum_tax it is entitled to adopt any reasonable method of determining each member's separate regular_tax_deduction under sec_56 in particular the d allocation petitioner goes so far as to argue that petitioner is required to use the d allocation for determining the separate regular_tax deductions of the ubc affiliated group's members under sec_56 petitioner argues that for the years in issue the amount of the ubc affiliated group's corporate_minimum_tax under petitioner's method is less than the tax under ubc's method and therefore petitioner is entitled to a refund for those years respondent acknowledges that the regulations relating to consolidated_returns the consolidated_return_regulations do not directly address the computation of the corporate_minimum_tax for groups filing consolidated_returns respondent argues however that under the general_rule of sec_1_1502-80 income_tax regs see sec_1 through income_tax regs the minimum_tax liability of the ubc affiliated_group is determined by the code or other law otherwise applicable thus respondent contends that sec_56 and c the legislative_history thereof and certain case law remain applicable requiring the regular_tax_deduction of the ubc affiliated_group under sec_56 to equal the amount of tax actually imposed on the group under chapter one of subtitle a of the code for the taxable_year without regard to the corporate_minimum_tax and certain other provisions respondent argues that under petitioner's method the aggregate of the members' separate regular_tax deductions will not equal ubc's consolidated regular_tax moreover respondent argues petitioner's method reduces the ubc affiliated group's corporate_minimum_tax only if the total of the members' separate regular_tax deductions exceeds ubc's consolidated regular_tax respondent states consequently if the court limits the total regular_tax deduction' to the ubc group's consolidated regular_tax_liability petitioner's overpayment claims become moot and resolution of the separate_return issue unnecessary in other words we need not determine the proper method of calculating the corporate_minimum_tax in the context of corporations filing consolidated_returns if we decide that the deduction under sec_56 for an affiliated_group_of_corporations filing a consolidated_return is limited to the tax actually imposed on such group under chapter one of subtitle a of the code for the taxable_year without regard to the corporate_minimum_tax and certain other provisions and reduced by the sum of certain credits the actually imposed chapter one tax discussion initially the dispute between the parties seems to involve two countervailing principles of the law relating to consolidated_returns each corporation is a separate taxpayer whether it stands alone or is in an affiliated_group and files a consolidated return' 78_tc_786 quoting 69_tc_276 and the purpose of the consolidated_return provisions is to require taxes to be levied according to the true net_income and invested capital resulting from and employed in a single business_enterprise even though it was conducted by means of more than one corporation' 83_tc_202 quoting 284_us_136 the nature of petitioner's refund claim with respect to the ubc affiliated group's corporate_minimum_tax liabilities however allows us to restrict our analysis to the centerpiece of the parties' dispute ie the amount of the deduction under sec_56 for an affiliated_group_of_corporations in other words if we decide that the deduction under sec_56 for an affiliated_group_of_corporations is limited to its actually imposed chapter one tax the parties will have no material disagreement in their computations pursuant to rule regarding the ubc affiliated group's corporate_minimum_tax liabilities for the years in issue therefore we shall first address that issue sec_1501 provides in part as follows an affiliated_group_of_corporations shall have the privilege of making a consolidated_return with respect to the income_tax imposed by chapter for the taxable_year in lieu of separate returns the making of a consolidated_return shall be upon the condition that all corporations which at any time during the taxable_year have been members of the affiliated_group consent to all the consolidated_return_regulations prescribed under sec_1502 prior to the last day prescribed by law for the filing of such return pursuant to sec_1502 congress has granted to the secretary_of_the_treasury broad authority to prescribe such regulations as he may deem necessary with respect to the making of consolidated_returns there are no regulations however that directly address the calculation of the corporate_minimum_tax for an affiliated_group_of_corporations that makes a consolidated returndollar_figure in the absence of consolidated_return_regulations governing a particular point this court shall look to the code or other law see eg wegman's properties inc subs v commissioner supra pincite sec on date the internal_revenue_service the irs issued technical information_release no which stated in part as follows the internal_revenue_service today announced that amendments will be made to the regulations to reflect the effect on consolidated_returns and partnerships of the addition by the tax reform act of of the minimum_tax for tax_preferences the amendment relating to consolidated_returns will make clear that the election by affiliated groups of corporations to file a consolidated federal_income_tax return is effective with respect to the computation of the minimum_tax as well as the regular income_tax those amendments however were never made on date the irs issued but never finalized a proposed amendment to sec_1_1502-2 income_tax regs which would have added the corporate_minimum_tax to the list of taxes to be computed as part of an affiliated group's consolidated_tax_liability income_tax regs sec_56 imposes with respect to the income of every corporation a tax equal to percent of the excess of the sum of the items of tax preference over the greater of dollar_figure or the regular_tax deductiondollar_figure sec_56 defines the term regular_tax_deduction to mean an amount equal to the taxes imposed by chapter one of subtitle a of the code for the taxable_year computed without regard to the corporate_minimum_tax and certain other provisions reduced by the sum of certain credits in norwest corp subs v commissioner tcmemo_1995_600 which involved the same norwest corp that is the successor_in_interest to the ubc affiliated_group in this case this court held that the amount of the sec_56 deduction for an affiliated_group_of_corporations is limited to the actually imposed chapter one tax of the affiliated_group that holding was based primarily on the rationale of sparrow v one court has stated that the purpose of the corporate minimum_tax is to make sure that the aggregating of tax- preference items does not result in the taxpayer's paying a shockingly low percentage of his income as tax 842_f2d_180 7th cir affg 88_tc_663 this court in 83_tc_202 examined the legislative_history of the corporate_minimum_tax and distilled two general principles first the tax was intended to limit the tax benefits and advantages from certain tax exemptions and special_deductions referred to as tax preference items second congress did not undertake a revision of the code provisions granting the tax_preferences or other substantive provisions such as the consolidated_return_regulations instead liability for this additional tax is generally to be measured by the provisions imposing it commissioner 86_tc_929 in sparrow the taxpayers argued that the regular_tax for purposes of calculating their alternative_minimum_tax under sec_55 was the tax that would have been imposed under sec_1 and not the lesser amount of tax that was actually imposed with the benefit of the income_averaging provisions of sections this court stated sec_55 now sec_55 defines regular_tax as the taxes imposed by this chapter for the taxable_year emphasis added this chapter is chapter of subtitle a of the code it encompasses sec_1 through thus the regular_tax includes the taxes imposed by sec_1 through in particular the tax imposed by sec_1 however sec_1301 allows a taxpayer to reduce the tax on averageable_income thereunder the amount so determined under sec_1301 thus becomes the tax imposed by sec_1 sec_1301 this figure therefore is the regular_tax and must be used in computing the alternative_minimum_tax petitioners would have us read sec_55 now sec_55 as defining regular_tax as the tax computed under sec_1 regardless of the tax actually imposed thereunder this we cannot do the statutory language is taxes imposed sparrow v commissioner supra pincite similarly sec_1_1502-2 income_tax regs provides that the tax_liability of an affiliated_group_of_corporations is determined by adding together the taxes imposed under various sections of chapter one of subtitle a of the code on the group's consolidated_taxable_income for the taxable_year the total of the taxes so determined is equal to the taxes imposed on an affiliated_group under chapter one of subtitle a of the code no other taxes are imposed on an affiliated_group or any of its separate members under chapter one of subtitle a of the code therefore the deduction under sec_56 for an affiliated_group is limited initially to an amount equal to the amount determined pursuant to sec_1_1502-2 income_tax regs which regulation provides a computation of the amount of taxes imposed on an affiliated_group under chapter one of subtitle a of the code the d allocation advanced by petitioner however would require us to read sec_56 as defining the term regular_tax_deduction to mean an amount of tax that is not actually imposed by chapter one of subtitle a of the code that we cannot do the statutory language is taxes imposed the d allocation is a method of allocating the tax_liability determined pursuant to sec_1_1502-2 income_tax regs for purposes of determining the earnings_and_profits of each member_of_an_affiliated_group see sec_1552 sec_1_1552-1 and b d income_tax regs the amounts allocated to each member_of_an_affiliated_group under the d allocation are certainly derived from and may in the aggregate equal the amount of taxes imposed on the affiliated_group pursuant to chapter one of subtitle a of the code for the taxable_year but are not themselves taxes so imposed the fact that sec_1_1552-1 income_tax regs treats the amounts allocated under the d allocation as a liability of each member of the affiliated_group does not convert such amounts into taxes imposed by chapter one of subtitle a of the code for purposes of sec_56dollar_figure petitioner's argument that the d allocation is used continued petitioner's reliance on 77_tc_1149 is misplaced in gottesman this court held that since the consolidated_return_regulations did not mandate a consolidated calculation of the accumulated_earnings_tax under sec_531 the taxpayer was permitted to use a separate company calculation in this case however petitioner seeks to adopt a method that is contrary to an express provision of the code sec_56 gottesman is inapposite in light of our analysis we believe that petitioner's other arguments do not merit discussion in conclusion the deduction under sec_56 for an affiliated_group_of_corporations is limited to the group's actually imposed chapter one tax and therefore petitioner's claims for refunds must fail e conclusion petitioner is not entitled to refunds of payments made to satisfy the ubc affiliated group's corporate_minimum_tax liabilities for the years in issue iv furniture and fixtures recovery_period issue a introduction we must determine the applicable_recovery_period for certain furniture and fixtures the furniture and fixtures placed_in_service by various members of the ubc affiliated_group during the group’s and taxable years the applicable recovery continued for other purposes such as the addition_to_tax under sec_6655 does not change our conclusion that the amounts derived from such allocation are not taxes imposed by chapter one of subtitle a of the code period is an element in the calculation of the deduction for depreciation allowed by sec_167 the parties disagree as to whether the recovery_period applicable to the furniture and fixtures i sec_5 years or years petitioner argues that it i sec_5 years while respondent argues that it is years ubc originally determined that the recovery_period applicable to the furniture and fixtures was years and applied that period to the furniture and fixtures in making its consolidated_returns for and in the relevant petitions petitioner avers that ubc’s original determination of the applicable_recovery_period was mistaken and that the correct applicable_recovery_period i sec_5 years petitioner asks that the court determine an overpayment in tax on account of that mistake the aggregate cost bases for the furniture and fixtures placed_in_service in and are dollar_figure dollar_figure and dollar_figure respectively the parties disagree as to whether a similar question is before the court with respect to the ubc affiliated group’s and short taxable years during those years various members of the ubc affiliated_group placed_in_service additional furniture and fixtures the furniture and fixtures ubc determined that the recovery_period applicable to the furniture and fixtures wa sec_5 years and applied that period to those furniture and fixtures in making its consolidated_returns for and respondent made no adjustment with respect to that determination in the relevant petition petitioner included the furniture and fixtures with the furniture and fixtures in its averment that ubc had mistakenly used a 7-year recovery_period in the answer respondent merely denied petitioner’s averment in their respective trial memoranda neither party identified the discrepancy in treatment between the furniture and fixtures and the furniture and fixtures in their stipulations however the parties recognize the discrepancy and petitioner concedes that it is not entitled to any additional_depreciation with respect to the furniture and fixtures on brief petitioner argues that the only applicable_recovery_period issue before the court concerns the furniture and fixtures respondent argues that the court must also determine the applicable_recovery_period with respect to the furniture and fixtures because that issue either was put in issue by the petition or was tried with consent of the parties we do not believe that petitioner intended to put into issue the applicable_recovery_period with respect to the furniture and fixtures nor do we believe that that issue was tried with petitioner’s consent rule d requires us to construe all pleadings to do substantial justice substantial justice would not be done were we to hold petitioner to an unintended construction of its pleading especially in light of respondent’s uninformative response clearly the issue was not tried with petitioner’s consent in light of the stipulation and the lack of any notice by respondent that he intended to raise the issue the parties have relied only on the stipulated facts in briefing this issue so we cannot conclude that petitioner failed to object to evidence that should have put petitioner on notice that the applicable_recovery_period with respect to the furniture and fixtures had been put into play by respondent sec_6214 provides us with jurisdiction to determine an increased deficiency if a claim therefor is asserted by the secretary at or before the hearing respondent has not relied on sec_6214 so we assume that respondent does not argue that he asserted a timely appropriate claim we conclude that the recovery_period applicable to the furniture and fixtures is not before the court for decision b applicable_recovery_period class_life sec_168 provides that the applicable_recovery_period of 5-year_property i sec_5 years and the applicable_recovery_period of 7-year_property is years sec_168 generally defines 5-year_property as property having a class_life of more than years but less than years and 7-year_property as property having a class_life of years or more but less than years class_life as defined by sec_168 is determined by reference to former sec_167 as in effect prior to its repeal by the omnibus budget reconciliation act of publaw_101_508 sec a 104_stat_1388 sec_167 provided for a depreciation allowance based upon the class_life prescribed by the secretary_of_the_treasury or_his_delegate the class lives of depreciable assets can be found in a series of revenue procedures issued by the commissioner see sec_1_167_a_-11 income_tax regs the revenue_procedure in effect for the years in issue in this case is revproc_87_56 1987_2_cb_674 rev_proc revproc_87_56 divides assets into two broad categories asset guideline classes dollar_figure through consisting of specific depreciable assets used in all business activities the asset category and asset guideline classes through consisting of depreciable assets used in specific business activities the activity category the specific asset guideline classes in issue are asset guideline classes dollar_figure and classes dollar_figure and respectively classes dollar_figure and and their headings are as follows specific depreciable assets used in all business activities except as noted dollar_figure office furniture fixtures and equipment includes furniture and fixtures that are not a structural_component of a building includes such assets as desks files safes and communications equipment does not include communications equipment that is included in other classes depreciable assets used in the following activities distributive trades and services includes assets used in wholesale and retail trade and personal and professional services includes sec_1245 assets used in marketing petroleum and petroleum products revproc_87_56 pincite the class lives specified for classes dollar_figure and are and years respectively if the furniture and fixtures are described in class they have a class_life of years and by virtue of sec_168 are 7-year_property with an applicable_recovery_period of years see sec_168 if the furniture and fixtures are described in cla sec_57 they have a class_life of years and by virtue of sec_168 are 5-year_property with a applicable_recovery_period of years see id c arguments of the parties the parties agree that the applicable_recovery_period for the furniture and fixtures turns on whether the furniture and fixtures are described in class dollar_figure or cla sec_57 class dollar_figure is in the asset category and cla sec_57 is in the activity category it is clear that at least in theory the same item of depreciable_property can be described in both the asset category and the activity category see eg revproc_87_56 cla sec_35 excluding assets in class dollar_figure through petitioner explicitly and respondent implicitly agree that the furniture and fixtures are described in both class dollar_figure and they disagree however on the classification that takes priority petitioner argues that logic and precedent require that the particular cla sec_57 should prevail over the general class legislative and administrative history support that result and a recent ruling of the commissioner’s revrul_95_ 1995_2_cb_27 amounts to a concession by the commissioner with respect to the issue before us respondent relies on the plain language of revproc_87_56 administrative history and our decision in norwest corp subs v commissioner tcmemo_1995_390 d discussion in norwest corp subs v commissioner tcmemo_1995_390 we addressed the same issue presented in this case we held that class dollar_figure takes priority over cla sec_57 petitioner argues that that conclusion is wrong petitioner argues that in norwest corp we failed adequately to analyze two cases 68_f3d_1006 7th cir revg and remanding 103_tc_582 on remand tcmemo_1996_374 and jfm inc subs v commissioner tcmemo_1994_239 the primary issue in walgreen co was whether certain leasehold improvements currently described in cla sec_57 were excluded from cla sec_50 cla sec_50 of revproc_72_10 1972_1_cb_721 rev_proc by virtue of being described in cla sec_65 cla sec_65 of revproc_72_10 cla sec_65 is entitled building services and includes among other things the structural shells of buildings and all integral parts thereof the court_of_appeals for the seventh circuit the seventh circuit traced the provenance of cla sec_65 to an asset category buildings in revproc_62_ 1962_2_cb_418 rev_proc the seventh circuit summarized the relevant aspects of revproc_62_21 as follows in the internal_revenue_service prescribed useful lives both for types of asset and types of business revproc_62_21 cum bull one type of asset was buildings defined as including the structural shell of the building and all integral parts thereof one type of business was wholesale and retail trade an asset might be a building used in wholesale and retail trade and thus fall into two useful-lives groups to take care of such overlaps revproc_62_21 provided that an asset that fell within both an asset group and an activity group would be classified in the asset group walgreen co subs v commissioner supra pincite the seventh circuit noted that unlike revproc_62_21 revproc_72_10 did not contain a priority rule walgreen co subs v commissioner supra pincite the government had based one of its arguments for affirmance on the assumption that the old rev_proc priority rule remained in effect ie that any asset described both in cla sec_50 and cla sec_65 would be deemed to be only in cla sec_65 for which a longer useful_life coincidentally had been specified walgreen had not challenged that assumption and immediately after reviewing the evolution of the asset classification system the seventh circuit stated that it would accept the assumption for purposes of deciding the appeal the seventh circuit remanded to the tax_court to find whether any or all of the leasehold improvements in question were excluded from cla sec_50 by virtue of being described in cla sec_65 we found that some were and some were not petitioner makes the simplistic argument that since the seventh circuit stated that cla sec_50 now cla sec_57 included all assets used in wholesale or retail trade except those in cla sec_65 and the furniture and fixtures would not be in cla sec_65 they must be in cla sec_57 we do not draw that conclusion the priority rule_of revproc_62_21 provided not only that the asset category of buildings prevailed over the activity category of wholesale and retail trade but also that the asset category that included office furniture and fixtures likewise prevailed the consideration that the seventh circuit gave to the evolution of the asset classification system before accepting the assumption of the government as to the survival of the revproc_62_21 priority rule with respect to cla sec_65 leads us to conclude that the seventh circuit might have reached a similar conclusion even without the taxpayer’s concession to the government’s assumption we attach little significance to the language to which petitioner directs our attention walgreen co subs v commissioner supra does not support petitioner’s argument jfm inc subs v commissioner supra is also inapposite in that case among other things we had to determine the classification under revproc_87_56 of gasoline pump canopies and related assets we determined that cla sec_57 and specifically included gasoline pump canopies we rejected the commissioner’s attempt to classify the assets under the broad definition of land improvements in class on the basis that such class was a catchall provision which specifically excluded assets explicitly included in other classes petitioner draws our attention to the following statement in jfm inc it is clear that classe sec_57 and were intended to cover all possible types of real or personal_property used in marketing petroleum products we made that statement in the context of rejecting the commissioner’s class classification which excludes assets described in other classes and we do not read that statement as establishing any priority between cla sec_57 and petitioner also relies on revrul_95_52 1995_2_cb_27 arguing that it shows that the recovery_period of furniture can be years because under the circumstances in the ruling furniture is included in cla sec_57 it is true that in the ruling the commissioner held that some furniture is in cla sec_57 the furniture in question however was furniture described as consumer durable property described in revproc_95_38 1995_2_cb_397 subject_to rent-to-own contracts entered into with individuals the furniture was generally used in an individual’s home that furniture thus does not fall within class which pertains to office furniture fixtures and equipment petitioner’s argument that legislative and administrative history support its position is basically an argument that policy goals such as simplification and controversy avoidance would be served by holding that the activity category includes all depreciable_property used in the named activities whether or not that may be true but it is not the pattern of the classification system which in specific instances excludes asset category items from the activity category see eg revproc_87_56 classe sec_35 revproc_87_56 also excludes from the asset category items described in the activity category see eg classes we do not discern the absolute position that petitioner advocates in the history it has cited to us petitioner’s argument that the particular should prevail over the general is an argument based on common sense and general rules of construction see eg 95_tc_364 when congress has dealt with a particular classification with specific language the classification is removed from the application of general language revd 955_f2d_908 4th cir petitioner however has not persuaded us that in this case cla sec_57 is the specific and class dollar_figure is the general there are exceptions from the asset category for items classified in the activity category and vice versa we are not convinced that the activity categorization of cla sec_57 is more specific than the asset categorization of class dollar_figure in the case of office furniture and fixtures petitioner’s suggested rule_of construction is of no help to it here respondent argues that the plain language of revproc_87_56 provides that the asset category consists of specific business_assets used in all business activities and that the inclusive adjective all plainly establishes a priority of asset categorization over activity categorization except where a specific exception applies we do not agree the adjective all simply serves to define a class in the category it does not help solve the priority question raised by a class in the activity category that on its face also includes the furniture and fixtures respondent also argues that his position is supported by the history of the asset depreciation_guidelines we have already discussed some of that history but at the risk of repeating ourselves will set forth respondent’s argument rev_proc 87-56's predecessors all grouped depreciable assets into the same two broad categories specific assets used in all business activities and assets used in specific business activities see revproc_83_35 1983_1_cb_745 revproc_77_10 1977_1_cb_548 and revproc_72_10 1972_1_cb_721 those revenue procedures were patterned after the first depreciation guideline revenue_procedure revproc_62_21 1962_2_cb_418 revproc_62_21 provided for four groups of depreciable assets the first group corresponding to the asset category of revproc_87_56 consisted of assets used by business in general the second third and fourth groups corresponding to the activity category of revproc_87_56 consisted of assets used in non- manufacturing activities manufacturing activities and transportation communication and public_utilities respectively specifically excluded from the second third and fourth groups were any assets coming within the first group although revproc_87_56 and its immediate predecessors do not explicitly exclude from the activity category assets coming within the asset category all continue the same pattern the legislative_history of acrs indicates that congress understood rev_proc 87-56's predecessors as providing that assets which are encompassed in classes in both the asset and activity categories are to be classified in the asset class in describing the adr system which was incorporated into acrs the conference committee report on the tax_reform_act_of_1986 states under the adr system a present class_life mid-point was provided for all assets used in the same activity other than certain assets with common characteristics eg automobiles h_r conf_rep no 99th cong 2d sess c b vol emphasis added automobiles comprised an asset category class class under revproc_83_35 c b we are not interpreting a statutory provision although congress clearly was concerned with the commissioner’s implementation of the class_life system and the system implements sec_167 we are interpreting an administrative creation and thus we must determine the administrator’s intent we are persuaded by respondent that revproc_62_21 established a pattern that was carried over into subsequent revenue procedures including revproc_87_56 notwithstanding the failure to continue a specific priority rule in subsequent revenue procedures there is sufficient similarity in style and organization between revproc_62_21 and its successors that we think that a similar priority rule was intended and we so find e conclusion the furniture and fixtures are described in class therefore they have a class_life of years and by virtue of sec_168 are 7-year_property with an applicable_recovery_period of years see sec_168 v net_operating_loss issue a introduction sec_172 allows a net_operating_loss_deduction for the aggregate of net_operating_loss carrybacks and carryovers to the taxable_year the term net_operating_loss nol is defined in sec_172 sec_172 provides the carryback and carryover periods for nols sec_172 and b provides that generally the carryback period for a nol i sec_3 years and the carryover period i sec_15 years sec_172 provides a special rule with respect to the bad_debt losses of commercial banks the portion of the nol of a commercial bank that is attributable to bad_debt losses is prescribed a carryback period of years and carryover period of years sec_172 provides a rule for determining the portion of a bank’s nol attributable bad_debt losses the portion of the net_operating_loss for any taxable_year which is attributable to the deduction allowed under sec_166 shall be the excess of -- i the net_operating_loss for such taxable_year over ii the net_operating_loss for such taxable_year determined without regard to the amount allowed as a deduction under sec_166 for such taxable_year sec_166 allows a deduction for bad_debts sec_1_1502-11 income_tax regs prescribes how consolidated_taxable_income is to be determined among other things it prescribes that consolidated_taxable_income is to be determined by taking into account the separate_taxable_income of each member of the group and a ny consolidated_net_operating_loss_deduction sec_1_1502-21 income_tax regs provides that the consolidated nol deduction is equal to the aggregate of the consolidated nol carryovers and carrybacks to the taxable_year in pertinent part sec_1 b income_tax regs provides that the consolidated nol carryovers and carrybacks to the taxable_year shall consist of any consolidated nols of the group that may be carried back or over to the taxable_year under the provisions of sec_172 sec_1_1502-21 income_tax regs provides rules for determining the consolidated nol in pertinent part it provides that the consolidated nol shall be determined by taking into account the separate_taxable_income as determined under sec_1_1502-12 of each member of the group finally sec_1_1502-12 income_tax regs provides that the separate_taxable_income of a member including a case in which deductions exceed gross_income is determined with certain modifications as if the member were not a member of the group the dispute between the parties concerns the calculation of that portion of the consolidated nol of the ubc affiliated_group for that is attributable to bank bad_debt losses and thus subject_to the special carryback and carryforward rules of sec_172 for the ubc affiliated_group consisted of both bank and nonbank members the parties have no dispute over how to determine the bad_debt portion of the nol of any bank member their dispute concerns the determination of the bank bad_debt portion of the consolidated nol we agree with respondent’s determination b facts all of the facts relevant to this issue have been stipulated in abbreviated form those facts are as follows by form_1139 corporation application_for tentative refund the form dated date ubc claimed tentative refunds for the taxable years and based on the carryback of a nol from the ubc affiliated group's taxable_year the consolidated nol ubc carried a portion of the consolidated nol back to the ubc affiliated group's taxable years and on the form_1139 ubc calculated the portion of the consolidated nol subject_to the 10-year carryback provided for by sec_172 the bad_debt portion by determining the bad_debt and nonbad debt portions of each loss bank member's nol allocating the consolidated nol among the loss members and in the case of loss bank members between the bad_debt and nonbad debt portions of their nols and aggregating the portions of the consolidated nol allocated to the bad_debt portions of the loss bank members' nols on the form_1139 ubc determined the bad_debt portion of each loss bank member's nol by taking the excess of its nol over its nol less its bad_debt deduction ie an amount equal to the lesser_of the bank's nol or bad_debt deduction thus for example in the case of united bank of aurora-south aurora-south a bank member of the affiliated_group which had an nol of dollar_figure and a bad_debt deduction of dollar_figure the bad_debt portion of the nol was determined to be dollar_figure after determining the bad_debt portion of each loss bank member's nol ubc allocated the consolidated nol among the group's loss members and in the case of the loss bank members between the bad_debt and the nonbad debt portions of their nols the allocation was made in proportion to the aggregate of the loss members' nols for example dollar_figure of the consolidated nol was allocated to the bad_debt portion of aurora-south's nol the bad_debt portion of aurora south’s nol was dollar_figure the consolidated nol as adjusted by respondent was dollar_figure and the aggregate of all loss members’ nols as adjusted by respondent was dollar_figure so dollar_figure dollar_figure x big_number big_number the sum of dollar_figure of the consolidated nol as adjusted by respondent was allocated to the nonbad debt portion of aurora-south’s nol the nonbad debt portion of aurora south’s nol was dollar_figure dollar_figure dollar_figure x big_number big_number after allocating the consolidated nol among the loss members ubc determined the bad_debt portion of the consolidated nol by aggregating the portions of the consolidated nol allocated to the bad_debt portions of the loss bank members' nols the bad_debt portion so determined was dollar_figure of which dollar_figure was attributable to separate_return_limitation_year srly bank members and dollar_figure was attributable to non-srly bank members based thereon ubc claimed consolidated nol carrybacks to the ubc consolidated group's taxable years and under the provisions of sec_172 totaling dollar_figure dollar_figure non-srly bank members dollar_figure srly carryback to in respondent’s notice_of_deficiency issued to petitioner for the ubc affiliated group's taxable years through and the notice respondent adjusted the consolidated nol to take into account various proposed adjustments as ubc did on the form_1139 respondent calculated the bad_debt portion of the consolidated nol by determining the bad_debt and nonbad debt portions of each loss bank member's nol allocating the consolidated nol among the loss members and in the case of loss bank members between the bad_debt and nonbad debt portions of their nols and aggregating the portions of the consolidated nol allocated to the bad_debt portions of the loss bank members' nols in the notice respondent like ubc on the form_1139 determined the bad_debt portion of each loss bank member's nol by taking the excess of its nol over its nol less its bad_debt deduction ie an amount equal to the lesser_of the bank's nol or bad_debt deduction thus for example in the case of aurora- south which had an nol of dollar_figure and a bad_debt deduction of dollar_figure the bad_debt portion of the nol was determined to be dollar_figure after determining the bad_debt portion of each loss bank member's nol respondent like ubc allocated the consolidated nol among the group's loss members and in the case of the loss bank members between the bad_debt and the nonbad debt portions of their nols the allocation was made in proportion to the aggregate of the loss members' nols for example dollar_figure of the consolidated nol as adjusted by respondent was allocated to the bad_debt portion of aurora-south's nol the bad_debt portion of aurora-south’s nol was dollar_figure the consolidated nol as adjusted by respondent was dollar_figure and the aggregate of all loss members’ nols as adjusted by respondent was dollar_figure thus dollar_figure dollar_figure x big_number big_number the sum of dollar_figure of the consolidated nol as adjusted by respondent was allocated to the nonbad debt portion of aurora-south’s nol the nonbad debt portion of aurora-south’s nol was dollar_figure dollar_figure dollar_figure x big_number big_number after allocating the consolidated nol among the loss members respondent in the notice like ubc on the form_1139 determined the bad_debt portion of the consolidated nol by aggregating the portions of the consolidated nol allocated to the bad_debt portions of the loss bank members' nols the bad_debt portion so determined was dollar_figure of which dollar_figure was attributable to srly bank members and dollar_figure was attributable to non-srly bank members based thereon the notice allowed nol carrybacks to the ubc affiliated group's taxable_year of dollar_figure non-srly bank members and taxable_year of dollar_figure srly carryback c petitioner’s position petitioner contends that the method used both by ubc on the form_1139 and respondent in the notice to determine the bad_debt portion of the consolidated nol is incorrect under the method asserted by petitioner the bad_debt portion of the consolidated nol is equal to the excess of the consolidated nol over the consolidated nol computed without the bad_debt deductions of the bank members under that method regardless of whether the consolidated nol on the form_1139 dollar_figure or in the notice dollar_figure is used since the bad_debt deductions of the bank members for total dollar_figure elimination of such bad_debt deductions from the consolidated nol ie the without calculation would eliminate the consolidated nol and result in substantial consolidated_taxable_income for the ubc consolidated_group under those circumstances there would be no consolidated nol to be allocated among the loss members of the group thus under the method asserted by petitioner the entire amount of the consolidated nol is attributable to bad_debt deductions of bank members and the entire portion of the consolidated nol allocated to the loss bank members is subject_to the 10-year carryback provisions of sec_172 d discussion consider a business with dollar_figure of gross_income deductions other than bad_debts of dollar_figure and deductible bad_debts of dollar_figure the business has a nol of dollar_figure under the general_rule of sec_172 the nol may be carried back years and carried over years and the constituent parts of the nol are of no importance in determining the business’s eligibility for such treatment if the corporation were a commercial bank however then because of sec_172 the constituent parts of the nol would be important because the special period rules of sec_172 apply only to that portion of the nol attributable to the deduction allowed by sec_166 the bad_debt portion in theory the bad_debt portion of the nol might be determined in a number of ways a simple way would be to determine that since the bad_debt deduction of dollar_figure accounted for approximately percent of the total deductions of dollar_figure percent of the nol ie dollar_figure is the bad_debt portion sec_172 adopts a different rule one that is favorable to the intended recipients commercial banks under sec_172 on the facts of our simple example if the corporation were a commercial bank the bad_debt portion is dollar_figure the assumption is that deductions for losses from bad_debts constitute the nol to the extent of such deductions neither party disagrees that sec_172 works as described their disagreement concerns the composition of the consolidated nol respondent would allocate the consolidated nol among the loss members of the ubc affiliated_group in proportion to each loss member’s share of the aggregate of all loss member’s nols and would further allocate each bank loss member’s share of the consolidated nol between the bad_debt portion of the bank member’s nol and the remainder of the bank loss member’s nol in proportion to those relative amounts thus assume that affiliated_group abc making a consolidated_return of income had a consolidated nol of dollar_figure and each member had separate taxable incomes as follows member a member b member c dollar_figure further assume that member c is a commercial bank and is the only member that is a commercial bank and that the bad_debt portion of its nol is dollar_figure respondent would apportion percent of the consolidated nol dollar_figure to member b and percent dollar_figure to member c respondent would further determine that the bad_debt portion of the consolidated nol is dollar_figure dollar_figure x dollar_figure dollar_figure under petitioner’s method t he bad_debt portion of the consolidated nol is equal to the excess of the consolidated nol over the consolidated nol computed without the bad_debt deductions of the bank members thus with respect to affiliated_group abc petitioner would determine that the bad_debt portion of the consolidated nol is dollar_figure the difference between the parties is whether the special ordering rule_of sec_172 should be applied to a consolidated nol the gist of petitioner’s argument is that the consolidated_return_regulations provide that the consolidated nol must be determined on a consolidated basis petitioner would thus analogize an affiliated_group with both bank and nonbank loss members and with a consolidated nol to a separate corporation with both bad_debt and nonbad debt losses and an nol and apply sec_172 to the consolidated nol we find no basis in the consolidated_return_regulations for petitioner’s analogy although the consolidated_return_regulations do speak in terms of a consolidated_net_operating_loss see sec_1_1502-21 income_tax regs it is quite clear that the consolidated_net_operating_loss is to be determined by taking into account the separate_taxable_income including the separate nol of each member of the group see sec_1_1502-12 sec_1_1502-21 income_tax regs the separately determined losses of each member of the affiliated_group do not lose their distinct character to the extent that such distinct character is important upon consolidation cf 31_fedclaims_598 a member_of_an_affiliated_group may have a separate net_operating_loss with independent significance for income_tax purposes affd without published opinion 59_f3d_181 moreover sec_172 is a special rule that prioritizes a bank’s losses nothing in that section leads us to believe that congress intended to give a priority to a bank member’s bad_debt losses as against a nonbank member’s losses in the context of a consolidated_return e conclusion as stated we agree with respondent’s determination of the appropriate method to determine the bad_debt portion of the consolidated nol decisions will be entered under rule appendix