Koramba Farmers & Graziers No. 1, Dean Phillips, Tax Matters Partner, et al. - Page 6

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          New South Wales, and exercises stringent controls over the                  
          placement of levees, banks, water channels, and reservoirs to               
          ensure proper floodplain management.  Pursuant to Part VIII of              
          the New South Wales Water Act (the Water Act), the partnerships'            
          conservation expenditures received general approval from the                
          Department of Water Resources as being consistent with the                  
          conservation guidelines and plan for the area.  Thus, the                   
          conservation expenditures incurred by the partnerships were                 
          consistent and in accordance with a conservation plan approved by           
          the Department of Water Resources for the floodplain in which the           
          land was located.                                                           
               In connection with the filing of Forms 1065, U.S.                      
          Partnership Return of Income, the partnerships elected to deduct            
          conservation expenditures under section 175.  Respondent accepted           
          the deductibility of the conservation expenditures incurred                 
          through December 31, 1986, but has disallowed the deductibility             
          of subsequent conservation expenditures.  In so doing, respondent           
          has taken the position that section 175, as modified by the Tax             
          Reform Act of 1986, Pub. L. 99-514, sec. 401(a), 100 Stat. 2221,            
          which added section 175(c)(3), no longer applies to conservation            
          expenditures incurred with respect to land located outside the              
          United States.  Respondent concedes that, but for the application           
          of section 175(c)(3)(A), all of the partnerships' conservation              
          expenditures would qualify for section 175 treatment.                       





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