Planned Community Developer Wins In Tax Court On Completed Contract Method

The Tax Court has ruled in Shea Homes Inc. et al. v. Commissioner (142 T.C. No. 3) that planned community developers can use the completed contract method to recognize income.

The taxpayers who brought the case built and developed planned communities in various states. The contracts at issue were long-term contracts that qualified under Section 460 as home construction contracts. The taxpayers elected to use the completed contract method to recognize taxable income under the contracts. At issue was when the contracts were completed under the test in the Section 460 regulations that provides that completion occurs upon "[u]se of the subject matter of the contract by the customer for its intended purpose (other than for testing), and at least 95% of the total allocable contract costs attributable to the subject matter have been incurred by the taxpayer."