Close
Close

Fifth Circuit upholds Tax Court: Land developer contracts are not home construction contracts

RFP
Tax Hot Topics: Land developer contracts not home construction contractsIn Howard Hughes Co., LLC v. Commissioner, No. 14-60915 (5th Cir. 2015), the Fifth Circuit Court of Appeals on Oct. 27 upheld the decision of the Tax Court that a land developer was not eligible to use the completed contract method for certain contracts.

The taxpayer in the case sold property to commercial builders or individual buyers who would then construct homes on the property. Under the land sale contracts, the taxpayer was obligated to construct infrastructure and other common improvements for the property; however it did not build homes, perform any home construction work or make improvements within the boundaries of any specific lot. The taxpayer took the position that the contracts met the requirements of home construction contacts under Section 460 and therefore entitled the taxpayer to use the completed contract method for computing gain.  

The Fifth Circuit upheld the decision of the Tax Court that a contract is a home construction contract for purposes of Section 460 only if “the taxpayer builds, constructs, reconstructs, rehabilitates, or installs integral components to dwelling units or real property improvements directly related to and located on the site of such dwelling units.” Because the taxpayer could not meet this test, it was not entitled to use the completed contract method.

Contacts
Sharon Kay
+1 202 861 4140
sharon.kay@us.gt.com

Ellen Martin
+1 202 521 1558
ellen.martin@us.gt.com

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.