Epco, Inc. and Subsidiaries - Page 4

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            Petitioner did not report the $35,625 on its 1989 Federal income                               
            tax return.  In her notice of deficiency, respondent determined                                
            that the $35,625 was includable in petitioner's income for 1989                                
            as "contributions in aid of construction" under section 118.                                   
                  At trial and in its briefs, petitioner argued that: (1) The                              
            contribution by McArthy (escrowed funds) is not a "contribution                                
            in aid of construction" within the meaning of section 118(b), but                              
            a nontaxable contribution to the capital of Imperial; (2) if the                               
            payment is a "contribution in aid of construction", including                                  
            such amount in the income of a corporation would violate the                                   
            Sixteenth Amendment; and (3) in the alternative, the fair market                               
            value of McArthy's contribution should be based on the revenue                                 
            generated by the sewer line rather than the cost of construction.                              
                  In Epco, Inc. & Subs. v. Commissioner, T.C. Memo. 1995-249,                              
            we found that the funds disbursed from the escrow account were                                 
            "contributions in aid of construction" of the sewer pipeline,                                  
            and, therefore, we held that the amounts disbursed are includable                              
            in petitioner's income.  Id.  We further held, based on the                                    
            legislative history of nonshareholder contributions, that                                      
            including in income "contributions in aid of construction" did                                 
            not violate the Sixteenth Amendment.  With respect to                                          
            petitioner's alternative argument, we stated:                                                  
                         Finally, we reject petitioner's alternative argument                              
                  that the amount of income includable should be the value of                              
                  the main-line extension computed using the discounted cash-                              
                  flow method based upon projected revenue.  Imperial received                             
                  cash.  Imperial did not receive an operating sewer system,                               

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