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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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Last modified: November 10, 2007