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to a subdivision should be added to the cost of the lots in the
subdivision. This Court stated as follows:
The difficulty with petitioner's contention is
that, unlike the taxpayer in Country Club Estates,
Inc., supra, the petitioner has not given up any
property in order to sell its lots. For the funds it
expended, the petitioner acquired a water supply system
which it owned and operated during the taxable years
and thereafter. It is true that the system has not
been operated at a profit, due, perhaps, to the small
number of houses which have been constructed at The
Colony. And it also may be true, as petitioner
contends, that the pumping station may be abandoned at
some time in the future, when the facilities of the
Lexington Water Company reach the subdivision. These
circumstances, however, do not alter the fact that the
petitioner retained full ownership and control of the
water supply system during the taxable years, and that
it did not part with the property for the benefit of
the subdivision lots. Because of this retention of
ownership, Country Club Estates, Inc., supra, is
distinguishable. * * * [Id. at 46.]
This Court in Estate of Collins v. Commissioner, 31 T.C. at
256 (1958), distilled the decisions in Country Club Estates, Inc.
v. Commissioner, supra, and Colony, Inc. v. Commissioner, supra,
and announced the following test:
A careful consideration of the cases above cited
indicates that if a person engaged in the business of
developing and exploiting a real estate subdivision
constructs a facility thereon for the basic purpose of
inducing people to buy lots therein, the cost of such
construction is properly a part of the cost basis of
the lots, even though the subdivider retains tenuous
rights without practical value to the facility
constructed (such as a contingent reversion), but if
the subdivider retains “full ownership and control” of
the facility and does “not part with the property
[i.e., the facility constructed] for the benefit of the
subdivision lots,” then the cost of such facility is
not properly a part of the cost basis of the lots.
The rule of Estate of Collins has been applied in subsequent
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