Company Expresses Concern With Treasury Regulations Affecting Payment of Certain Taxes by Condo Developers

We are writing to you directly in light of your recently published statements concerning Treasury's "highest priority" to assist taxpayers through these difficult economic times and requesting suggestions that would be helpful.

We are concerned that current Treasury Regulations may be interpreted to require developers of condominiums to report projected income from pre-sale contracts (even with small and escrowed down payments) as the building is built over 12 or more months, rather than on a sale closing, even if there is no assurance that such sale ultimately will close and even if such income is not reportable for financial statement purposes. In other words, the Regulations as written may require condominium developers to pay income tax on sales as construction of the condominium is completed rather than when cash is received from the sale.

We strongly believe that such an interpretation would have a serious negative impact on the current nationwide housing and mortgage credit crisis. Requiring those in the housing industry to pay tax in advance on sales that could close (if at all) years later without any cash receipt is a hardship for many developers and likely will put some over the edge of financial disaster, causing additional havoc not only for themselves, but prospective purchasers, their contractors and their lenders.

We understand that current Treasury Regulations under Internal Revenue Code ("IRC") § 460 are in the process of being revised for other concerns. Accordingly, we respectfully request that you include in these current revisions a clarification ensuring that condominium housing developers will not be taxed until they receive the purchase price or progress payments, like contractors, for whom IRC § 460 is generally focused.

This could be accomplished, for example, by adding a provision to Treasury Regulations sections 1.460-1(b)(2)(i), 1.480-3(a) or both to the effect that notwithstanding the general language therein, a "contract manufacturer for building, etc." will include only an agreement that requires progress payments to be made over the construction period equal to substantially all of the purchase price.

Thank you, Assistant Secretary Solomon, for your consideration in this matter.