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in aid of construction") and deposited this amount in an
interest-bearing checking account in the names of McArthy and
Imperial at Lemay Bank & Trust Co. The account bore McArthy's
Social Security number as the taxpayer identification number, and
interest earned on the account was paid to McArthy. Funds could
be withdrawn from the bank by checks signed by both Fribis, as
president of Imperial, and McArthy.
Imperial contracted with McClanahan Contracting
(McClanahan), a partnership of which Fribis was a partner, to
install the sewer main-line extension and expand Manor. The cost
of extending the main-line from Manor to Brookshire was $350,000.
Imperial paid approximately $150,000 of this cost and the
remainder consisted of the $200,000 from the escrow account. The
expansion of Manor cost $190,000.
The escrowed funds were credited toward the $400 per pad
"contribution in aid of construction fee". As such, Imperial did
not charge McArthy a fee to connect each mobile home to the sewer
system. From the escrow account, $164,375 was disbursed in 1988
and $35,625 was disbursed in 1989 to subcontractors and
contractors working on the construction of the sewer pipeline,
including Price Bros., Klueter Bros., McClanahan, and Fred Weber
Inc. Imperial now owns the sewer line extension.
On its 1988 Federal income tax return, petitioner included
in gross income the $164,375 disbursed from the escrow and
claimed depreciation in connection with those disbursements.
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Last modified: May 25, 2011