At the beginning of the current year, Henry purchased a ski resort for $10 million. Henry does not own the land on which the resort is located. The Federal government owns the land, and Henry has the right to operate the resort on the land pursuant to Special Use Permits, which are terminable at will by the Federal government, and Term Special Use Permits, which allow the land to be used for a fixed number of years.
In preparing the income tax return for the current year, Henry properly allocated $2 million of the purchase price to the costs of constructing mountain roads, slopes, and trails. Since the acquisition, Henry has spent an additional $1 million on maintaining the mountain roads, slopes, and trails. Identify the relevant tax issues for Henry?