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VRI’s 1994 U.S. Income Tax Return for an S Corp. (Form
1120S) was prepared using the alternative cost method under Rev.
Proc. 92-29, to allocate a ratable portion of the following total
actual and estimated costs to VRI’s cost bases in all of the
residential lots on the Property:
Total Actual and Estimated Costs and Expenses to be AllocatedAmount
VRI’s total actual acquisition costs for the Property $ 5,715,345
VRI’s total estimated construction costs for the Golf Course13,390,624
VRI’s total estimated construction costs for the Clubhouse3,707,662
VRI’s total actual 1994 interest expense relating to both the
the Golf Course and the Clubhouse 1,160,405
VRI’s total estimated post-1994 interest expense relating to
the Golf Course and the Clubhouse 5,861,595
Total $29,835,631
On VRI’s 1994 Federal income tax return, in computing its
gain on the residential lots sold in 1994, VRI computed its cost
bases in the lots based on an allocation of the above total
actual and estimated costs for the Golf Course and the Clubhouse,
thereby reducing VRI’s reported gain for 1994 with respect to the
lots sold.
During the transition period, on VRI’s 1996, 1997, 1998, and
1999 Federal income tax returns for an S Corp., VRI apparently
did not claim any depreciation deductions with respect to its
costs of constructing the Golf Course and the Clubhouse.
In the statutory notice of deficiency, respondent treated
VRI’s development and sale of the residential lots on the
Property as a project separate from VRI’s construction of both
the Golf Course and the Clubhouse, and therefore respondent
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Last modified: May 25, 2011