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In Lomas Santa Fe, Inc. v. Commissioner, 693 F.2d 71 (9th
Cir. 1982), the corporate taxpayer purchased land in fee simple
on which it planned to develop a luxury community. For State law
reasons, the taxpayer formed a subsidiary and transferred that
portion of the land designated as a golf course and country club
to the subsidiary, while retaining a 40-year term interest in the
golf course. The taxpayer then sought to amortize its basis in
the term interest over 40 years. Relying on United States v.
Georgia R.R. & Banking Co., supra, the court held that a taxpayer
who holds nondepreciable property (the golf course) in fee simple
may not create a depreciable asset by carving out a term interest
for itself and conveying the remainder to a third party.
Gordon v. Commissioner, supra, presented a somewhat
analogous situation to the one at hand. Dr. Gordon, the tax-
payer, had established a family trust for the benefit of his
minor children. Upon the advice of his lawyers, he agreed to
participate in an investment scheme geared for professionals
having qualified pension or profit-sharing trusts. The arrange-
ment called for joint purchases of tax-exempt bonds. The pro-
fessional would purchase at fair market value a life estate in
the bond, and the trust would purchase the remainder interest.
According to Dr. Gordon's lawyers, it would give him "'a sub-
stantial tax-free cash flow during his life, a proportionate tax
deduction over his life expectancy of his cost of acquisition,
and a reduction of his taxable estate.'" Id. at 311.
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