Miyamoto v. Commissioner
| Decision Date | 28 July 1986 |
| Docket Number | Docket No. 3555-83,3749-83,3750-83.,3748-83 |
| Citation | 1986 TC Memo 313,51 TCM (CCH) 1550 |
| Parties | Kenneth H. Miyamoto and Carol Sue Miyamoto, Et Al. v. Commissioner. |
| Court | U.S. Tax Court |
Mark Arth, 1040 Northwestern Bank Bldg., St. Paul, Minn., for the petitioners. Mark A. Pridgeon and John C. Schmittdiel, for the respondent.
Respondent determined the following deficiencies in petitioners' Federal income taxes:
PetitionersYearDeficiency
Kenneth H. Miyamoto ...................... 1977 $1,639.00
and Carol Sue Miyamoto ................... 1978 $1,096.00
Robert W. Wagner ......................... 1978 $1,011.00
and Marcella E. Wagner
Paul S. Gray and ......................... 1977 $2,198.00
Jeanne R. Gray ........................... 1978 $2,392.00
David S. Guckenberg and .................. 1977 $ 325.00
June E. Guckenberg ....................... 1978 $4,459.00
The issues are (1) whether petitioners are precluded by section 46(e)(3),2 pertaining to noncorporate lessors, from claiming an investment tax credit with regard to components of certain leased restaurant facilities and, if they are not so precluded, (2) whether certain of these components constitute section 38 property and are thus eligible for the investment tax credit.
The facts have been fully stipulated. We set forth herein those facts pertinent to our decision.
Petitioners Kenneth H. Miyamoto and Carol Sue Miyamoto resided in Bloomington, Minn., when they filed their petition herein. They filed joint Federal income tax returns for 1977 and 1978, listing their respective occupations as "Food Service (General Manager)" and "Housewife".
Petitioners Robert W. Wagner and Marcella E. Wagner resided in Faribault, Minn., when they filed their petition herein. They filed a joint Federal income tax return for 1978, listing their respective occupations as "Self Employed" and "Housewife".
Petitioners Paul S. Gray and Jeanne R. Gray resided in Faribault, Minn., when they filed their petition herein. They filed joint Federal income tax returns for 1977 and 1978, listing their respective occupations as "Executive" and "Housewife".
Petitioners David S. Guckenberg and June E. Guckenberg resided in Tonka Bay, Minn., when they filed their petition herein. They filed joint Federal income tax returns for 1977 and 1978, listing their respective occupations as "Certified Public Accountant" and "Secretary/Housewife" on their 1977 return, and as "Corporate Officer" and "Housewife/Secretary" on their 1978 return.3
During or prior to the years in issue, petitioners Kenneth H. Miyamoto, (herein, "Miyamoto") Paul S. Gray (herein, "Gray"), David S. Guckenberg (herein, "Guckenberg") and Robert W. Wagner (herein, "Wagner"), together with certain other individuals, entered into a total of seven partnerships (herein referred to collectively as "the partnerships") as described herein. Gray, Guckenberg and Wagner entered into two partnerships during 1972, one entitled "Sandy's Investment Company of Fairmont" and the other "Sandy's Investment Company of Cloquet." Miyamoto, Gray, and Guckenberg entered into one partnership during 1976, entitled "Mason City Division, North Central Food Systems Investment Company" and another during 1977, entitled "Crookston Division, North Central Food Systems Investment Company." Miyamoto, Gray, Guckenberg and Wagner entered into two partnerships during 1975, one entitled "Grand Forks Division, Central Foods Systems Investment Company" and the other, "Superior Division, Central Foods Systems Investment Company". They also entered into one partnership during 1978, entitled "North Central Food Systems Investment Co., Hutchinson Division."
The partnership agreements for two of the partnerships, Sandy's Investment Company of Fairmont and Sandy's Investment Company of Cloquet, provided, in relevant part, as follows:
The purpose of this Partnership is to acquire for investment, receive title to certain real estate located in *** a specified location, and to conduct the operation of leasing such real estate to others.
The partnership agreements for the five remaining partnerships provided, in relevant part, as follows:
The purpose of this Partnership is to acquire for investment, receive title to certain real estate located in *** a specified location and to conduct the operation of leasing such real estate to others, or to operate a retail fast food franchise thereon.
The partnership agreements do not indicate that any of the partnerships had as a business purpose the construction, manufacture or production of fast food franchise restaurant buildings or their components.
Each of the seven partnerships owns and leases a Hardee's fast food restaurant to North Central Food Systems, Inc.,4 a corporation which operates the restaurant under a franchise from Hardee's Food Systems Inc., of Rocky Mount, North Carolina (herein, "Hardee's Food Systems"). Hardee's Food Systems strives to achieve a uniform style and appearance with respect to the buildings housing the restaurants operated by its franchisees and, to this end, supplies detailed construction drawings and specifications for such buildings. These drawings and specifications were used in the construction of the seven restaurant buildings owned and leased by the partnerships.
The record contains copies of agreements pertaining to the construction of three of the seven restaurant buildings. The first of these is entitled "Construction Contract Agreement for the Construction of a Hardee's Family Restaurant." This agreement, which calls for the construction of a Hardee's restaurant at Crookston, Minnesota, is dated August 19, 1977, and is between "North Central Foods Systems, Inc., a corporation" as the owner,5 and Bear Construction, Inc., of Grand Forks, North Dakota as the contractor. Article II thereof provides, in relevant part, as follows:
This agreement also contains provisions relating to the contract price, time for completion, events of default, and various covenants of the contractor.
Of the two remaining construction agreements in the record, the first is dated as of May 1, 1978, and is between "Sandy's Investment Co. of Cloquet" as the owner and Paul S. Gray Co., Inc. as the contractor.7 It designates the project as "renovation and addition to" a Hardee's restaurant in Cloquet, Minn. The second is dated as of June 6, 1978, and is between "Hardees Investment Co., of Hutchinson"8 as the owner and Paul S. Gray Co., Inc. as the contractor. It designates the project as a new Hardee's Restaurant in Hutchinson, Minn. Each of these two contracts is entitled "Standard Form of Agreement Between Owner and Contractor" and is a standard form contract produced by the American Institute of Architects (AIA Document A101). Each is a four page document containing brief provisions relating to, among other things, the work, time of commencement, the contract sum, progress payments, and final payment.9 Such agreements do not contain any provision concerning the owner's rights of control, if any, over the construction process.
Each of the Hardee's restaurant buildings leased by the partnerships to North Central Foods Systems, Inc., contains various components. The parties agree that one of the restaurant buildings, located at Hutchinson, Minn. (herein, the "Hutchinson restaurant"), is representative of the others, and they have submitted detailed information pertaining thereto. The following table shows the various components of the Hutchinson restaurant, and their related costs.
Description of Property Cost Claimed
Parking Area Lighting ................................ 1,829
Decorative Divide Walls .............................. 587
Menu Board and Framing and Electric .................. 749
Drive Up Window ...................................... 526
Safe Installation .................................... 74
Lay in Acoustical Ceiling ............................ 3,559
Identity Soffit and Mansard .......................... 6,479
Sanitary Finishes .................................... 8,913
Cabinets and Counters ................................ 2,595
Toilet Room Accessories/Partitions ................... 1,629
Kitchen Plumbing System ..............................
...To continue reading
Request your trial