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is not completed within the taxable year in which it is entered
into. Notice 89-15, Q&A-2, 1989-1 C.B. 634. The notice further
provides that a contract for the sale of property may be a long-
term contract if the "building, installation, or construction of
the subject matter of the contract is necessary in order for the
taxpayer's contractual obligations to be fulfilled". Notice 89-
15, Q&A-4, 1989-1 C.B. 634.
Petitioner's sales agreements required the construction of
buildings and improvements to real property. Nevertheless,
respondent, relying on Notice 89-15, Q&A-4, 1989-1 C.B. 634,
contended that the agreements were not long-term contracts
because the sale of the parcels, rather than construction of
buildings and improvements, was the "primary subject matter" of
the agreements.
Contrary to respondent's contention, the construction of
buildings or improvements to real property need not be the
primary subject matter of the contract. Rather, such
construction need only be necessary to fulfill the taxpayer's
contractual obligation. Pursuant to the sales agreements, FRC
was obligated to construct buildings and improvements relating to
the Whiting Ranch. Moreover, Lyon's and Partners' rights to
develop their land were limited until these obligations were
fulfilled (i.e., the county would incrementally issue
construction permits as the obligations were fulfilled). In
addition, the sales agreements imposed on FRC construction
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