FRGC Investment, LLC, James P. Mehen, Tax Matters Partner - Page 14




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          just 2 weeks after the cancellation of escrow on the 1996                   
          purchase agreement.                                                         
               Although a remote possibility of future use does not                   
          necessarily preclude abandonment, Citizens Bank of Weston v.                
          Commissioner, 252 F.2d 425 (4th Cir. 1958), affg. 28 T.C. 717               
          (1957), we cannot ignore the language in section 1.165-1(b),                
          Income Tax Regs., that requires that substance, not mere form,              
          shall govern in determining a deductible abandonment loss.  In              
          substance, FRGC’s sole business purpose was to engage in                    
          predevelopment activities to acquire property for Flagstaff                 
          Ranch.  Although the unfavorable November 1997 zoning meeting and           
          cancellation of escrow on the 1996 purchase agreement slowed                
          FRGC’s progress, they were not a bar to prevent FRGC from signing           
          an agreement to acquire the property in early January 1998.  An             
          otherwise abandoned expenditure, if part of an integrated plan              
          that is implemented, is not an abandonment loss under section               
          165(a).  Nicolazzi v. Commissioner, 79 T.C. 109, 132 (1982),                
          affd. 722 F.2d 324 (6th Cir. 1983).  Indeed, petitioner withdrew            
          the zoning request prior to a vote at the November 1997 board               
          meeting, which indicates that he did not want to foreclose the              
          opportunity to resubmit the request at a later meeting.                     
               Although petitioner would have us ignore the realities of              
          what transpired 2 weeks later, we decline to do so.  Instead, we            
          view the 1995 and 1996 purchase agreements that were entered into           






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