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petitioner is not required to include the entire amount of the
entry fees in income in the year of receipt. Only the
nonrefundable or nonforfeitable amounts each year constitute
income. Petitioner included in income for a specific taxable
year those portions of the entry fees for the apartments and the
lodge that became nonrefundable or nonforfeitable within that tax
year. This method of accounting for the entry fees clearly
reflects income. It was an abuse of discretion for respondent to
conclude that the fees must be included in petitioner's income
for the year of receipt. We hold for petitioner on this issue.
Cluster Home Transactions
Respondent has treated the cluster home and condominium
transactions as sales, requiring the gain from these transactions
to be included in income in the year of receipt and disallowing
the depreciation deductions petitioner took with respect to these
units. Petitioner argues that its obligation to repurchase a
cluster home or condominium unit created a security transaction
in the nature of a mortgage, not a sale. We agree with
respondent.
"Under North Carolina law, the test for determining whether
a conveyance with an option to repurchase represents a true sale
(...continued)
nor helpful to the Court, and on brief the parties seem unable to
agree as to what their experts supposedly agreed to. The Court
has disregarded both parties' expert reports and the experts'
joint exhibit. After notice petitioner could increase the
monthly rental payments for the apartment or lodge units, without
regard to the entry fees. The Court rejects respondent's
suggestion that the entry fees represent prepaid rent that
somehow makes up for supposed below market rental rates.
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