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The example contained in section 1.46-3(d)(4)(ii), Income
Tax Regs., supports this interpretation:
in 1964 X Corporation, a utility company which makes
its return on the basis of a calendar year, enters into
an agreement with Y Corporation, a builder, to
construct certain utility facilities for a housing
development built by Y. Assume further that part of
the funds for the construction of the utility
facilities is advanced by Y under a contract providing
that X will repay the advances over a 10-year period in
accordance with an agreed formula, after which no
further amounts will be repayable by X even though the
full amount advanced by Y has not been repaid.
Assuming that the utility facilities are placed in
service in 1964 and qualify as section 38 property, X
is allowed a credit for 1964 with respect to its basis
in the utility facilities at the close of 1964. For
each succeeding taxable year X is allowed an additional
credit with respect to the increase in the basis of the
utility facilities resulting from the repayments to Y
during such year.
The regulation contemplates an ITC in subsequent years only when
the total cost of the property is indeterminable at the time the
property is placed in service. The example does not suggest that
the taxpayer is entitled to an ITC in subsequent years for the
costs of components added after the property was placed in
service.
We interpret section 1.46-3(d)(4), Income Tax Regs., as
requiring all components to be placed in service simultaneously
in order to qualify as a single unit of property for purposes of
receiving an ITC. This is consistent with the previously cited
cases. Consequently, we hold that additional components added to
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