Fifth Circuit: Methods of accounting for land development contracts

Methods of accounting for land development contracts

The U.S. Court of Appeals for the Fifth Circuit affirmed a 2014 decision of the U.S. Tax Court denying the taxpayers, in the consolidated cases, the ability to use the completed contract method of accounting in computing gains from sales of property under long-term construction contracts because the contracts did not qualify as home construction contracts. As such, the taxpayers were to have used the percentage of completion method in computing their gains.

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The Tax Court found that the bulk sale and custom lot contracts were not home construction contracts (as defined by section 460(e)) and that, as such, the taxpayer could not account for these contracts using the completed contract method of accounting, but was to use a permissible method of accounting for long-term contracts (such as the percentage of completion method). 

The Fifth Circuit affirmed. Howard Hughes Co. LLC v. Commissioner, No. 14-60915 and No. 14-60921 (5th Cir. October 27, 2015). Read the Fifth Circuit’s decision [PDF 170 KB] (Note that this decision was updated by the Fifth Circuit on December 7, 2015).

 

Read an initial discussion of the Tax Court’s decision (June 2014) in this proceeding: TaxNewsFlash-United States [PDF 74 KB]

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