David C. Hutchinson, et al. - Page 28




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          interest expense should be treated as estimated construction                
          costs and available for allocation under the alternative cost               
          method.  In Haynsworth, the taxpayer included interest expense in           
          their estimate of anticipated development costs for purposes of             
          computing cost-of- goods-sold, but, as a result of payment of the           
          mortgage on the property, the taxpayer eliminated the interest              
          from its adjusted estimates.  Petitioners claim that Haynsworth             
          indicates a long accepted practice of including interest expense            
          in the estimated costs of common improvements.                              
               Treatment of the interest expense was not at issue in                  
          Haynsworth.  The interest expense mentioned in Haynsworth was               
          removed from the total estimated costs in a year before the years           
          in dispute.  We reject petitioners’ argument that interest                  
          expense should be included in estimated construction costs based            
          on Haynsworth or some accepted practice regarding estimated                 
          interest expense.                                                           
               Rev. Proc. 92-29, 1992-1 C.B. 748, provides an alternative             
          to the economic performance rules under section 461(h) for                  
          determining when estimated construction costs may be included in            
          the bases of lots sold.  In enacting the economic performance               
          rule, Congress was concerned that allowing taxpayers to take                
          current deductions for future obligations overstated the true               
          costs because the time value of money was not taken into account.           








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