CCA 201537022: Developer includes costs of improvements in basis of lots sold. Developer also receives a bond from the district and bond interest payments. Developer treats interest payments as tax-exempt interest and does not reduce basis of lots sold correspondingly. IRS determines that this is inconsistent treatment. Interest payments, given the Developer’s treatment of costs, will be treated as ordinary income that is taxable to the Developer. See also Rev. Proc. 92-29.
What is Interest (I.R.C. 103)