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affg. in part, vacating in part, and remanding T.C. Memo. 1995-
249 and T.C. Memo. 1995-499.
The issue for decision is the proper amount of contribution
in aid of construction income includable in petitioner's 1989
gross income. In order to decide this issue, we are required to
determine the fair market value of a sewer line petitioner
constructed using amounts contributed to petitioner as a
contribution in aid of construction.
Petitioner, using the capitalization of income method of
valuation, contends that the sewer line has a fair market value
of $80,000 and that petitioner recognized no contribution in aid
of construction income in 1989. Respondent, using the cost
method of valuation, contends that the sewer line has a fair
market value of $540,000 and that petitioner recognized $200,000
in contribution in aid of construction income in 1989.
In EPCO, Inc. & Subs. v. Commissioner, T.C. Memo. 1995-249
(EPCO I), this Court held that escrow amounts disbursed in the
construction of a sewer line constituted a contribution in aid of
construction under section 118(b), and, as such, were includable
in petitioner's income.1 We further held that petitioner
1 Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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