Gobble Corporation purchased 400 acres in Green City to build a private golf course and 200 executive homes. The land cost $10,000,000. Gobble planned high quality, large (over 5,000 square feet) houses that would sell for an average of $700,000.
Gobble believed that the city's general plan expressly permitted this development.
Gobble spent in excess of $1,000,000 in "soft costs" to pay architects and, civil engineers, for all necessary environmental impact studies and approvals. Two years ago, Gobble's development proposal was approved by the city council in a 5 - 4 vote.
Two months after the vote, the membership in the council changed dramatically. The major local election issue was growth versus no growth. The population of the city voted strongly for a no-growth slate of council members. Given the strong community sentiment, the new city council voted to disregard the earlier vote and alter the city's general plan to prohibit such a large development. The council decided to do what was necessary to defeat the development proposal.
As a result, Gobble sued the city. Gobble charged that the city unfairly reneged on its original project approval and abused its discretion by unreasonably interpreting its general plan. Gobble charged that this action caused great harm to Gobble. For the past one and one-half years, the litigation has been ongoing and has cost Gobble a total of $500,000.
Gobble's CFO has come to you to help prepare the company's federal corporation income tax return for the past year and to amend the return for the year before last. Gobble would like to deduct all the costs incurred in this transaction, including the $1,000,000 paid for the land acquisition. The $1,000,000 initial costs were capitalized on the first year's return, which is now the subject of amendment.
a. What relevant primary authority did you locate?
b. Does the authority adequately address the research question(s)? If so, what are your conclusions and reasoning upon which they are based?
c. Were there additional questions that required research beyond a reference service?
d. What resources did you use in your research?
e. How much time did you spend on this portion of your research?