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v. Commissioner, 112 T.C. 14, 17 (1999) (citing Von-Lusk v.
Commissioner, 104 T.C. 207, 215 (1995)). Further, the
regulations provide:
If property is held for future production, taxpayers
must capitalize direct and indirect costs allocable to
such property (e.g., purchasing, storage, handling, and
other costs), even though production has not begun. If
property is not held for production, indirect costs
incurred prior to the beginning of the production
period must be allocated to the property and
capitalized if, at the time the costs are incurred, it
is reasonably likely that production will occur at some
future date. Thus, for example, a manufacturer must
capitalize the costs of storing and handling raw
materials before the raw materials are committed to
production. In addition, a real estate developer must
capitalize property taxes incurred with respect to
property if, at the time the taxes are incurred, it is
reasonably likely that the property will be
subsequently developed. [Emphasis added.]
Sec. 1.263A-2(a)(3)(ii), Income Tax Regs.
In 1995, the year in which the real estate taxes were paid,
petitioner filed a document with the County outlining plans to
subdivide the property. Petitioner testified that he filed the
application to change the zoning of the property from SPA to
residential zoning because the SPA zoning was depressing the
value of his property. Petitioner also testified: “I filed this
application to give attention to County of Sacramento. My
properties are ready to be developed”.
We have rejected arguments that a physical change to the
property is required for the capitalization of costs. See Von-
Lusk v. Commissioner, supra at 218. In addition, we have held
that our determination as to whether development will occur is
unaffected by local regulations that may delay or eventually
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