Calpo Hom & Dong Architects, Inc. - Page 9




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          architectural or nonarchitectural.5  Petitioner concludes on the            
          basis of the revenue summaries that of its 2002 revenue totaling            
          $2,442,122,6 $1,710,502 was received for architectural services             
          and $731,620 was received for nonarchitectural services.                    
               The fatal flaw in petitioner’s approach is that the revenue            
          summaries measure the wrong data.  Under the function test of               
          section 448(d)(2), “substantially all of the activities * * *               
          [must] involve the performance of services in the fields of * * *           
          architecture”. (Emphasis added.)  Section 1.448-1T(e)(4)(i),                
          Temporary Income Tax Regs., supra, states:  “Substantially all of           
          the activities of a corporation are involved in the performance             
          of services in any field * * * only if 95 percent or more of the            
          time spent by employees of the corporation * * * is devoted to              
          the performance of services in a qualifying field.” (Emphasis               
          added.)  In other words, the appropriate inquiry is whether                 
          petitioner’s employees devoted substantially all of their time to           
          the performance of architectural services.  The revenue summaries           


               5  Petitioner’s architectural services included schematic              
          design, design development, construction documents and bid                  
          negotiations, construction document support, and specialized                
          architectural services; petitioner’s nonarchitectural services              
          included space planning, space planning support, price planning,            
          interior design, construction administration, specialized                   
          services, and outside consulting.                                           
               6  We note that petitioner’s revenue summaries indicate                
          total 2002 revenue of $2,442,122, while its 2002 tax return                 
          indicates gross receipts of $2,728,291.  Petitioner does not                
          explain this discrepancy.                                                   





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