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explained the purpose and application of the alternative cost
method as follows:
Where a developer is bound by contract to
make certain improvements for the benefit of
the property sold, the fact that the
expenditure required to install the
improvement is not made during the taxable
period within which part of the property is
sold should not prevent an aliquot portion of
the cost from being offset against the profit
from the sale of the property. [Citation
omitted.]
To qualify under Rev. Proc. 75-25, among other requirements,
a developer had to have a contractual obligation to provide the
common improvement costs which were to be estimated and
allocated, and the common improvements could not be recoverable
by the developer through depreciation.
In 1984, Congress enacted sec. 461(h) to postpone the
deductibility to taxpayers of many costs until “economic
performance” occurs. Deficit Reduction Act of 1984, Pub. L. 98-
369, 98 Stat. 598. Generally, under section 461(h), if property
or services are to be provided by taxpayers, economic performance
is not regarded as having occurred until the taxpayers actually
incur the costs of providing the property or services.
Proposed regulations under section 461(h) were issued on
June 7, 1990, and adopted on April 9, 1992. See 55 Fed. Reg.
23235 (June 7, 1990), 57 Fed. Reg. 12411 (April 10, 1992). The
preamble to the section 461(h) regulations, as proposed,
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