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based on a cost estimate of approximately $50,100 per unit.
However, WSAI incurred approximately $3,500 to $4,000 in
commissions and settlement costs for each condominium. In
addition, rebates or building allowances were given to
prospective buyers in amounts ranging from $1,500 to $3,500.
WSAI also incurred financing costs, unanticipated zoning costs,
development fees, $25,000 paid in settlement of a lawsuit by
South Wood Condominium Association related to alleged
construction defects in South Wood and various
misrepresentations, nondisclosures, and failures to perform, and
WSAI’s actual construction costs.
Toward the end of 1988, two of the 18 units remained unsold.
Petitioner and Ackerman orally agreed that WSAI would transfer
title to the two remaining condominium units to petitioner in
consideration of petitioner’s assumption of the Foss, Navar, and
Posa notes, and petitioner’s discharge of WSAI’s “debt” owed to
him.
In December 1988, WSAI transferred South Wood’s two
remaining condominium units to petitioner. Petitioner did not
report any income or gain from the receipt of the two condominium
units on his 1988 Federal income tax return, but did report a
taxable dividend from WSAI in the amount of $90. Although WSAI
had filed U.S. corporation income tax returns for the tax years
1986 and 1987, employing the completed contract method of
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