David C. Hutchinson, et al. - Page 18

                                       - 18 -                                         
               In respondent’s notices of deficiency to petitioners,                  
          respondent determined that the development and sale of VRI’s                
          residential lots, on the one hand, and the Golf Course and                  
          Clubhouse, on the other hand, constituted two separate                      
          development projects (i.e., that the Golf Course and Clubhouse              
          were not improvements common to the development of the                      
          residential lots) and that VRI therefore could not, under the               
          alternative cost method, allocate to the residential lots the               
          costs of constructing the Golf Course and the Clubhouse.                    
               As explained, in respondent’s pretrial memorandum,                     
          respondent abandoned the contention that the residential lots,              
          the Golf Course, and the Clubhouse constituted separate projects,           
          and for the first time respondent contended that VRI, not VCI,              
          owned the completed Clubhouse, had a depreciable interest in the            
          Clubhouse, and would have been able to recover its actual                   
          construction costs through depreciation, and therefore that VRI             
          could not use the alternative cost method to allocate its                   
          estimated Clubhouse construction costs to its bases in the                  
          residential lots.                                                           
               The evidence relevant to whether development of the                    
          residential lots, the Golf Course, and the Clubhouse constituted            
          a single project is quite different from the evidence required of           
          petitioners to prove, as between VRI and VCI, ownership of, and             
          the existence of a depreciable interest in, the Clubhouse.                  

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