[Cost basis: Contingent liability of purchaser of assets.]--T Corp. purchased the operating assets of a predecessor company, and continued the business of the predecessor. As part of the purchase agreement T was required to procure a release of the predecessor’s liability under a Union contract for severance pay to employees upon permanent closing of the plant. T obtained such release, by entering into a new agreement with the Union which imposed liability upon T for severance pay only where T failed to give specified notice to its employees prior to closing. Held, T may not increase its cost basis of the assets purchased by reason of its contingent liability for severance pay.
Albert R. Mugel, Liberty Bank Bldg., Buffalo, N. Y., and Irving L. Innerfield, for the petitioner. John E. McDermott, Jr., for the respondent.
Respondent determined a deficiency in income tax of petitioner in the amount of $16,959.40 for the year 1955.
The sole question is whether petitioner overstated its cost basis in computing depreciation and gain on sale with respect to certain assets which it purchased in 1955.