Home / Articles / Tax ruling creates opportunities for construction, development companies

Tax ruling creates opportunities for construction, development companies

March 14, 2014

Share:

What Shea v. Commissioner could mean for you

Recently the U.S. Tax court ruled in favor of Shea Homes LP in the case of Shea Homes, Inc. v. Commissioner, 142 TC No.3 (Access pdf of the ruling).

This ruling could have significant impact on home builders’ ability to defer income. In this case, the court ruled the builder could defer payment of taxes on home sales until nearly all of the homes in the large-scale, life-styled focused developments were sold using the “completed contract method.”

The IRS had wanted Shea to pay taxes on each home, as it was sold, and not wait until 95 percent of the properties in the planned developments were sold.

While the Shea decision gives some clarification for construction companies that use, or plan to use, the completed contract method, there are details about the Shea case that needs to be considered. The most important is how Shea marketed and conceptualized its developments, not just as homes, but as lifestyle communities where “common improvements,” such as amenities (clubhouses, pools, golf courses) were a significant investment. In essence, Shea was saying home buyers were buying more than a home, they were also buying the amenities that were included in the community as a package deal.

Key planning and a thorough understanding of this tax court ruling is key to determining if your construction or development company could take advantage of the potential ability to defer payment of taxes.

Shea Homes, Inc and subsidiaries et al v. Commissioner of Internal Revenue; Docket No. 1400-10.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

NYDFS Cybersecurity Checklist

Article

2 Min Read

NFT Considerations for Not-for-Profit Organizations

Article

2 Min Read

Year-End Spending Package Tackles Retirement Planning and Conservation Easements

Article

2 Min Read

2023 Tax Calendar

Article

2 Min Read

Ohio Governor Mike DeWine Appoints Amr Elaskary of Clark Schaefer Hackett to the Accountancy Board of Ohio

Article

2 Min Read

Zach Gubser Rejoins Clark Schaefer Hackett in Shareholder Role

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.
  • Hidden
  • This field is for validation purposes and should be left unchanged.