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for development rights in the depreciable basis of Library
Tower. Library Square did not deduct any of the $14,249,918 as
depreciation, and that amount is not an issue in these cases.
Library Square included the remaining $18,942,649 in the
depreciable basis of Library Tower and deducted an amount based
thereon in its tax returns for 1989-96.
Fifth & Grand included the $17,700,000 that MTP paid to CRA
for development rights in connection with Phase III of the OPA
in the depreciable basis of Grand Place Tower and deducted
amounts based thereon in its tax returns for 1991-92 and 1994-
96.
In Notices of Final Partnership Administrative Adjustments
(FPAA) issued to Library Square for 1989-96, and to Fifth &
Grand for 1991-92 and 1994-96, respondent disallowed the
depreciation Library Square and Fifth & Grand had claimed with
respect to costs incurred to acquire development rights.
OPINION
A. The Parties’ Arguments
1. Petitioners’ Arguments
Petitioners contend that (a) all of the development costs
in issue were incurred to acquire the variations that allowed
Library Square and Fifth & Grand to construct Library Tower and
Grand Place Tower; (b) Ordinance No. 159802 and the MTP
Designated Building Site added nothing to the rights that
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