Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-50

1968-1 C.B. 364

Sec. 48

Sec. 1245

IRS Headnote

Structures housing machinery and equipment in breaker and fine-coal plants are `buildings' within the meaning of section 1.48-1(e)(1) of the Income Tax Regulations and, therefore, are not `section 1245 property' under section 1245(a)(3) of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 68-50

Advice has been requested whether, under the circumstances below, the structures housing the machinery and equipment in breaker and fine-coal plants are `buildings' within the meaning of section 1245(a)(3) of the Internal Revenue Code of 1954.

The taxpayer, who has been in the coal mining business for many years, sold three of its breaker and fine-coal plants in 1966. The structures that house the machinery in these plants are the large conventional type enclosures that are normally used at coal plants, having steel framework with sides and roofs of corrugated iron. The machinery and equipment in these plants can be removed without replacing the structures. In fact, during the past years, most of the machinery within the structures has been replaced with more modern machinery withouit replacing the structures.

Section 1245(a)(3) of the Code provides in part as follows:

Section 1245 Property.-For purposes of this section, the term `section 1245 property' means any property (other than livestock) which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either-

(A) personal property, or

(B) other property (not including a building or its structural components) but only if such other property is tangible and has an adjusted basis in which there are reflected adjustments described in paragraph (2) for a period in which such property (or other property)-

(i) was used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, * * *

*

Section 1.1245-3(c)(2) of the Income Tax Regulations states that the term `building' (as that term is used in section 1245(a)(3) of the Code) shall have the meaning assigned to that term in section 1.48-1(e) of the regulations.

Section 1.48-1(e)(1) of the regulations provides in pertinent part:

The term `building' generally means any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. The term includes, for example, structures such as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, and stores. Such term includes any such structure constructed by, or for, a lessee even if such structure must be removed, or ownership of such structure reverts to the lessor, at the termination of the lease. Such term does not include (i) a structure which is essentially an item of machinery or equipment, or (ii) an enclosure which is so closely combined with the machinery or equipment which it supports, houses, or serves that it must be replaced, retired, or abandoned contemporaneously with such machinery or equipment, and which is depreciated over the life of such machinery or equipment. Thus, the term `building' does not include such structures as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, coke ovens, brick kilns, and coal tipples.

The structures housing the breaker and fine-coal plants, described above, are not coal tipples within the meaning of section 1.48-1(e)(1) of the regulations. A coal tipple is a facility or device for tipping loaded coal cars. It often includes a covered elevated runway or framework upon which the cars are run for tipping; thus it is essentially an item of machinery or equipment. In contrast a breaker and fine-coal plant contains many different kinds and pieces of machinery or equipment, the largest of which may, in some instances, require its own foundation and does not rely on the building itself for support.

The structures described in this case are not essentially items of machinery or equipment, and are not so closely combined with the machinery or equipment that they must be replaced, retired, or abandoned contemporaneously with such machinery or equipment.

Accordingly, the structures housing the machinery or equipment in the breaker and fine-coal plants are `buildings' within the meaning of section 1.48-1(e)(1) of the regulations and, therefore, are not `section 1245 property' under section 1245(a)(3) of the Code.