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cases. In Willow Terrace Dev. Co. v. Commissioner, 40 T.C. at
701,6 this Court stated:
As we read the Collins case, the pivotal consideration
is whether the basic purpose for constructing such
utilities systems in real estate subdivisions is to
induce people to buy lots in such subdivisions. It is
a question of fact, and in resolving it the profit and
loss record of the operating company must, of course,
be considered. But this does not mean that the
presence of some profit will always be fatal to the
taxpayers's case. * * *
In addition, this Court in Noell v. Commissioner, 66 T.C. 718,
725 (1976), stated as follows:
The critical question is whether petitioner
intended to hold the facilities to realize a return on
his capital from business operations, to recover his
capital from a future sale, or some combination of the
6 The Court of Appeals for the Fifth Circuit stated as
follows:
The problem presented by these cases is whether
deduction or capitalization of such costs will more
accurately reflect the economic realities of the
situation from the standpoint of the subdivider. We
cannot accept the rule advocated by the Commissioner,
which in effect allows deduction only when the costs
can be recovered in no other manner. Some relevant
factors to be considered in determining the proper tax
treatment of the costs of such facilities are whether
they were essential to the sale of the lots or houses,
whether the purpose or intent of the subdivider in
constructing them was to sell lots or to make an
independent investment in activity ancillary to the
sale of lots or houses, whether and the extent to which
the facilities are dedicated to the homeowners, what
rights and of what value are retained by the
subdivider, and the likelihood of recovery of the costs
through subsequent sale. These factors were considered
in Collins, and the holding centered on the basic
purpose test as modified by ownership. * * * [Willow
Terrace Dev. Co. v. Commissioner, 345 F.2d 933, 938
(5th Cir. 1965).]
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