David C. Hutchinson, et al. - Page 13

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          respondent’s new contentions.  Respondent counters that under our           
          Rules the new contentions should be treated only as new theories,           
          not as new issues, and that the burden of proof should remain               
          with petitioners on all factual matters.                                    

               Generally, under Rev. Proc. 75-25, 1975-1 C.B. 720 (Rev.               
          Proc. 75-25), a real estate developer was allowed, in the first             
          year of construction of a development, to allocate to the                   
          developer’s cost bases in separate lots to be sold certain                  
          estimated construction costs of improvements common to the entire           
          development.  The purpose of Rev. Proc. 75-25 was to allow a real           
          estate developer to spread more evenly and fairly the amount of             
          the developer’s gain or loss relating to a real estate                      
          development over the years of construction.  By allocating, at              
          the beginning of a development, estimated construction costs                
          relating to common improvements to the developer’s cost bases in            
          lots to be sold, a developer was able to recognize less income in           
          the early years of a development as lots were being sold (as a              
          result of the increased cost bases in the lots on which the                 
          developer’s taxable gain was computed).                                     
               In Herzog Bldg. Corp. v. Commissioner, 44 T.C. 694, 702-703            
          (1965), involving a predecessor ruling to Rev. Proc. 75-25,3 we             

          3    Mim. 4027, XII-1 C.B. 60 (1933).                                       

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