- 40 -
the possibility that the transferred land could revert to the
taxpayer upon the occurrence of certain contingencies. The
Court, citing Kentucky Land, Gas & Oil Co. v. Commissioner,
2 B.T.A. 838 (1925),5 held that the basis of the lots included
the cost of the property transferred to the Club because “the
basic purpose of petitioner in transferring the land was to bring
about the construction of a country club so as to induce people
to buy nearby lots.” Country Club Estates, Inc. v. Commissioner,
supra at 1293.
In Colony, Inc. v. Commissioner, 26 T.C. 30 (1956), affd.
per curiam 244 F.2d 75 (6th Cir. 1957), a taxpayer in the
business of developing and selling real estate argued that the
cost of a water supply pumping system that provided water service
4(...continued)
large interior area of the island that was reserved for 10 years
(later extended an additional 3 years) as a playground and
recreational center for the use of lot purchasers:
[The interior] area was not permanently and irrevocably
dedicated to the public, but may later be sold by
petitioner. The possibility of gain has only been
postponed. It is unlike the area used for public
streets, which is permanently beyond the possibility of
sale and gain, the cost of which must be absorbed in
the salable lots. * * * [Biscayne Bay Islands Co. v.
Commissioner, 23 B.T.A. 731, 735 (1931).]
5 In Kentucky Land, Gas & Oil Co. v. Commissioner, 2 B.T.A.
838 (1925), the taxpayer acquired a tract of oil land, which the
taxpayer subdivided into lots. The taxpayer drilled four wells
on the subdivision. The Board of Tax Appeals (the Board) held
that the cost of drilling one well only was an additional cost of
the lots and “a proper charge against the sale price of the lots
sold” because the taxpayer was “bound to drill but one well”
under the covenants in the deeds of conveyance. Id. at 840.
Page: Previous 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 NextLast modified: May 25, 2011