(Corrects to clarify Howard Hughes Corp was spun off by General
Growth Properties Inc, add details on liability in 12th
By Patrick Temple-West
WASHINGTON Feb 13 A California homebuilder has
prevailed in U.S. Tax Court in a case involving an accounting
method that could help builders and developers defer taxes,
industry experts said on Thursday.
Handing a defeat to the Internal Revenue Service, the court
ruled that Shea Homes LP could defer payment of taxes
on home sales until 95 percent of the homes in its huge,
gated-community developments were sold.
The IRS had argued Shea should pay taxes as it sold each
home and not wait until its developments, including thousands of
properties, were nearly filled, court filings showed.
The Tax Court, which hears most disputes between taxpayers
and the IRS, found that Walnut, California-based Shea's use of
the "completed contract method" of accounting was appropriate.
The company "properly used a permissible method of
accounting," Judge Robert Wherry said in an 82-page opinion.
Shea Homes did not immediately respond to requests for
comment. The IRS declined to comment on Thursday.
The tax agency has challenged companies for years over the
completed contract method. The Shea decision will give more
certainty to companies that use the method, experts said.
"This is a huge case, not only because of the money involved
but because of the definitions," said Alan Clark, an accountant
in Atlanta and chairman of the Construction Financial Management
Association, a construction industry trade group.
"This case should help developers. It should help spur
investments," Clark said.
Shea's dispute involved $23.7 million in taxes for 2004 and
2005. The housing developments at the center of the dispute were
in Arizona, California and Colorado. The case was being watched
by other home developers, including Howard Hughes Corp.
Howard Hughes is challenging the IRS over a $144.1 million
tax bill over a completed contract method dispute involving home
sales. That case, filed in Tax Court, went to trial in November
2012 and is awaiting a decision. Activist investor William
Ackman is chairman of Howard Hughes.
Dallas-based Howard Hughes was spun off from General Growth
Properties Inc. Though Howard Hughes is the company in
court, General Growth Properties is liable for the tax payments
if the IRS wins, according to the spinoff agreement. A spokesman
for General Growth Properties declined to comment on Thursday.
The case is Shea Homes, Inc and subsidiaries et al v.
Commissioner of Internal Revenue; Docket No. 1400-10.
(Editing by Kevin Drawbaugh and Richard Chang)