L&B Corp. v. Comm'r of Internal Revenue
| Decision Date | 06 April 1987 |
| Docket Number | 33261-84.,32935-84,Docket Nos. 32911-84 |
| Citation | 88 T.C. No. 42,88 T.C. 744 |
| Parties | L & B CORPORATION, A NEBRASKA CORPORATION, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners' partnerships placed in service refrigerated structures, truck turn-arounds, and railroad trackage during the years in issue. Meat packers and other independent parties rented or leased space in the refrigerated structures primarily for the cold storage of various meats and certain other food products. Petitioners sought investment tax credits under sec. 38, I.R.C. of 1954, as amended, with respect to costs relating to the structures. Respondent allowed credits only with respect to certain refrigeration system components of the refrigerated structures. HELD, the refrigerated structures are not buildings for purposes of the investment tax credit. HELD, FURTHER, the cold storage of meats and other food products, the primary function of the refrigerated structures, is not a ‘processing of meat‘ within the meaning of sec. 1.48-1(d)(2), Income Tax Regs., and therefore not an ‘integral part of * * * production.‘ Sec. 48(a)(1)(B)(i). HELD, FURTHER, the refrigerated structures are not used for the bulk storage of fungible commodities within the meaning of sec. 48(a)(1)(B)(iii). HELD, FURTHER, the costs relating to the refrigerated structures, truck turn-arounds, and railroad trackage are thus eligible for investment tax credit only to the extent allowed by respondent.
HELD, FURTHER, the refrigerated structures and truck turn- grounds may be depreciated under the 150 percent declining balance method but not the 200 percent declining balance method. HELD, FURTHER, the useful lives of the refrigerated structures and railroad trackage determined. Truman Claire, Steven M. Watson, Paul A. Rauth, and Jackie L. Vencil, for the petitioners.
Robert L. Archambault, for the respondent.
Respondent determined the following deficiencies in petitioners' Federal income taxes and claimed, by Amendments to Answer, the following increased deficiencies in petitioners' Federal income taxes:
+---------------------------------------------------+
¦ ¦ ¦ ¦Increased ¦
+---------------------+-------+----------+----------¦
¦Petitioner ¦Year ¦Deficiency¦deficiency¦
+---------------------+-------+----------+----------¦
¦L&B Corp. ¦2/28/75¦$10,353.89¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦2/29/76¦307.58 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦2/28/79¦18,991.04 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦2/29/80¦19,590.06 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦2/28/81¦17,249.75 ¦$3,325.91 ¦
+---------------------+-------+----------+----------¦
¦Larry A. Larsen and ¦1976 ¦9,301.73 ¦ ¦
+---------------------+-------+----------+----------¦
¦Betty J. Larsen ¦1977 ¦22,770.73 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦1978 ¦13,916.15 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦1979 ¦27,177.68 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦1980 ¦20,708.32 ¦4,096.49 ¦
+---------------------+-------+----------+----------¦
¦Estate of Howard C. ¦1976 ¦6,803.23 ¦ ¦
+---------------------+-------+----------+----------¦
¦Larsen, deceased, and¦1977 ¦1,903.85 ¦ ¦
+---------------------+-------+----------+----------¦
¦Maxine J. Larsen ¦1978 ¦11,843.21 ¦ ¦
+---------------------+-------+----------+----------¦
¦ ¦1979 ¦29,627.03 ¦1,683.14 ¦
+---------------------+-------+----------+----------¦
¦ ¦1980 ¦28,418.35 ¦ ¦
+---------------------------------------------------+
Petitioners were partners in certain partnerships. After concessions, the issues for decision are (1) whether petitioners are entitled to investment tax credits under section 38 2 with respect to certain refrigerated structures, truck turn-arounds, and railroad tracks placed in service by the partnerships in 1979 and 1980 to an extent greater than allowed by respondent; (2) whether the partnerships are entitled to depreciation deductions with respect to the refrigerated structures and truck turn-arounds using the 200-percent declining balance method of depreciation under section 167(b)(2); and (3) whether the partnerships are entitled to depreciation deductions with respect to the refrigerated structures and railroad tracks based on useful lives of 15 years or 33- 1/3 years.
Some of the facts have been stipulated. The facts set forth in the stipulations are incorporated in our findings by this reference.
Petitioner L & B Corporation, a Nebraska corporation, had its principal place of business in Omaha, Nebraska, when its petition was filed. The corporation filed 1974 through 1980 corporate income tax returns with the Internal Revenue Service Center in Ogden, Utah, for its fiscal years ended February 28, 1975 through February 28, 1981, respectively. Petitioners Larry A. Larsen and Betty J. Larsen, husband and wife, resided in Omaha, Nebraska, when they filed their petition. They filed joint Federal income tax returns for 1976 through 1980 and an amended return for 1978 with the Internal Revenue Service Center in Ogden, Utah. Howard C. Larsen died on June 7, 1982, and his surviving spouse, Maxine J. Larsen, is the duly appointed executrix of his estate. Petitioner Maxine J. Larsen resided in Omaha, Nebraska, when she filed the petition on behalf of her husband's estate and herself. They filed joint Federal income tax returns for 1976 through 1980. They had two children, Lance Sterling Larsen and Ashley Larsen.
Petitioners were partners in Larsen Realty, Millard Warehouse - Des Moines (Millard-DM), and Millard Warehouse—Denison (Millard-D) (collectively, the partnerships), partnerships with principal offices located in Omaha, Nebraska. The partnerships filed information returns with the Internal Revenue Service Center in Ogden, Utah, as follows: Larsen Realty for calendar years 1979 and 1980, Millard-DM for calendar years 1979 and 1980, and Millard-D for calendar year 1980.
By partnership agreements, the following partners, including petitioners, were entitled to distributive shares of income, gain, loss, deductions, and credits of said partnerships in the percentages and for the years indicated:
+-------------------------------------------------------------+
¦ ¦ ¦Millard ¦Millard ¦
+------------------------+-------------+----------+-----------¦
¦ ¦ ¦Warehouse-¦Warehouse ¦
+------------------------+-------------+----------+-----------¦
¦Partners ¦Larsen Realty¦Des Moines¦Denison ¦
+------------------------+-------------+----------+-----------¦
¦ ¦(1979-80) ¦(1979-80) ¦(1980 only)¦
+------------------------+-------------+----------+-----------¦
¦L&B Corp. ¦ ¦50% ¦ ¦
+------------------------+-------------+----------+-----------¦
¦Larry A. Larsen ¦50% ¦25 ¦60% ¦
+------------------------+-------------+----------+-----------¦
¦Howard and Maxine Larsen¦50 ¦ ¦ ¦
+------------------------+-------------+----------+-----------¦
¦Howard Larsen ¦ ¦25 ¦ ¦
+------------------------+-------------+----------+-----------¦
¦Lance Sterling Larsen ¦ ¦ ¦20 ¦
+------------------------+-------------+----------+-----------¦
¦Ashley Larsen ¦20 ¦ ¦ ¦
+------------------------+-------------+----------+-----------¦
¦ ¦100 ¦100 ¦100 ¦
+-------------------------------------------------------------+
DESCRIPTION OF THE FACILITIES
Larsen Realty operated its business in facilities located in Omaha, Nebraska (LR-Omaha), and Lincoln, Nebraska (LR-Lincoln). LR- Omaha commenced operations in about 1961, at which time its first cold storage facility was built. On or about August 1, 1979, Larsen Realty placed in service the following additions to LR-Omaha: a refrigerated structure, a loading dock area, and a paved truck turn- around area.
The refrigerated structure, as described below, was designed and constructed in such a manner as to provide for the cold storage of certain meats and other products. Thus, the structure includes certain insulation and other special features to maintain cold temperatures inside the structure and to prevent the penetration of moisture into the facility.
The refrigerated structure is rectangular in shape, approximately 160 feet by 130 feet, and stands approximately 25 feet high. The structure rests on a foundation of poured concrete footings, under each wall and the dock partition, and concrete block footings, under certain walls. The structure and the pre-existing facility share a common wall, an insulated metal panel wall. The floor of the structure is a 6 inch poured concrete level slab. Beneath the concrete floor is a 6 inch layer of polystyrene insulation. Beneath the insulation and extending under the added loading dock area is a layer of gravel. Approximately 40 rows of 4 inch clay pipe run north to south within the gravel layer under the floor of the cold storage facility and dock area. Waste heat from refrigerator compressors is pumped through the clay tiles to the outside to keep the ground below the floor from freezing which, if it did, would cause the floor of the structure to buckle or heave. Prior to construction, the soil was tested to...
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