David C. Hutchinson, et al. - Page 14

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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                         

               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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