Internal Revenue Service
Revenue Ruling
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smRev. Rul. 77-21
1977-1 C.B. 251
Section 48
Section 167
Section 1250
IRS Headnote
Section 1250 property; relocatable classroom units. Relocatable classroom units that are secured with steel straps to large concrete blocks set on the ground and for which special licenses, permits, and procedures are required for relocation are inherently permanent structures qualifying as section 1250 property, and only methods prescribed in section 167(j)(1) of the Code may be used in computing depreciation with respect to the units.
Full Text
Rev. Rul. 77-21
Advice has been requested whether, under the circumstances described below, certain relocatable classroom units are "section 1250 property" within the meaning of section 1250(c) of the Internal Revenue Code of 1954 so that only the methods of depreciation prescribed in section 167(j)(1) are allowable.
In 1975, the taxpayer purchased a number of new relocatable classroom units that it then leased to the local school district. Each classroom unit has a wood frame construction, a gabled roof, and two extension doors. Its dimensions are 22 feet wide by 36 feet long, with a ceiling height of 8 feet. The classroom rests on concrete blocks that are set on the ground. A 20 gauge steel stirrup, 4 inches wide by 22 inches long, is embedded in 4 inches of concrete centered in each cement block that weighs approximately 153 pounds. Steel straps are fastened to the steel stirrups and secured to the beams under the classroom with scaffold nails.
The classroom units are subject to the allowance for depreciation provided in section 167 of the Code.
While some of the relocatable classroom units are never moved, others are moved with some frequency. On the average a unit is moved to a new location every 2.5 to 3 years. Because of its size, a special permit is required to move the classroom unit from one site to another if it has to cross a highway, street, or alley. Furthermore, in order to move such a unit, a contractor must be licensed by the city. After timbers are secured to the joists, the classroom unit is placed on a flat bed truck and moved to a new location.
For purposes of section 1250 of the Code, the term "real property" means all property not falling within the definition of personal property under section 1.1245-3(b) of the Income Tax Regulations.
Section 1.1245-3(b) of the regulations defines personal property as meaning tangible personal property (as defined in section 1.48-1(c)) and intangible personal property. Section 1.48-1(c) provides, in part, that the term "tangible personal property" means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of such buildings or structures). Thus, buildings, swimming pools, paved parking areas, wharves and docks, bridges, and fences are not tangible personal property.
Section 167(j)(1) of the Code provides, in part, that in the case of section 1250 property, section 167(b) is not applicable and the term "reasonable allowance" as used in section 167(a) includes an allowance computed under any of the following methods:
(A) the straight line method,
(B) the declining balance method, using a rate not exceeding 150 percent of the rate that would have been used had the annual allowance been computed under the method described in section 167(j)(1)(A), or
(C) any other consistent method productive of an annual allowance that, when added to all allowances for the period commencing with the taxpayer's use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances that would have been used had such allowances been computed under the method described in section 167(j)(1)(B).
In Joseph Henry Moore, 58 T.C. 1045 (1972), aff'd per curiam, 489 F. 2d 285 (5th Cir. 1973), the United States Tax Court held that mobile homes in a mobile home park that were set on piers of unconnected concrete blocks and were fully capable of being moved on their own wheels were tangible personal property because they were not affixed to the land.
Rev. Rul. 75-178, 1975-1 C.B. 9, states that the classification of property as "personal" or "inherently permanent" should be made on the basis of the manner of attachment to the land or the structure and how permanently the property is designed to remain in place.
In the instant case, the size and bulkiness of the classroom units, the manner of attachment to the land, and the special steps that must be taken in order to move them are such that the classroom units are inherently permanent structures attached to the land.
Accordingly, the relocatable classroom units in the instant case are section 1250 property and the only methods of depreciation available to the taxpayer for such property are those prescribed in section 167(j)(1) of the Code.