Foothill Ranch Company Partnership, Buck Equities, Ltd., Tax Matters Partner - Page 7

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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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