Rev. Rul. 84-60

1984-1 C.B. 13, 1984-17 I.R.B. 7.

                       Internal Revenue Service
                                 Revenue Ruling

    INVESTMENT CREDIT;  STRUCTURES USED FOR STORAGE;  REASONABLY ADAPTED TO
                                   OTHER USES

                           Published: April 23, 1984

Section 48. - -Definitions;  Special Rules, 26 CFR 1.48-1: Definition of section 38 property.

  Investment credit;  structures used for storage;  reasonably adapted to other uses.  A structure that is used for the bulk storage of a fungible commodity, but can be reasonably adapted to other uses, is a building and is not section 38 property.  Rev. Rul. 71-359 modified.

ISSUE

  Is a structure that is constructed and used for the bulk storage of a fungible commodity but that can be reasonably adapted to other uses section 38 property for purposes of the investment tax credit?

FACTS

  The taxpayer's structure, which was constructed for the storage of grain, is 200 feet long and 70 feet wide, with two large sliding doors at each end.  The structure encloses a flat, unobstructed concrete floor.  The side walls are reinforced concrete from the base to a height of 5 feet with steel siding extending 22 feet from the top of the concrete to the roof.  A beam is in place under the roof to support a device used to unload the grain.  The taxpayer uses the structure in connection with the cultivation of the soil for the bulk storage of grain.  Although the structure can be reasonably adapted to other uses, the taxpayer does not plan to change the use of the structure at this time.  The structure is recovery property as described in section 168(c) of the Internal Revenue Code and was placed in service in 1981.

LAW AND ANALYSIS

  Section 38 of the Internal Revenue Code of 1954 allows a credit against Federal income tax for qualified investment in section 38 property.  The determination of what qualifies as section 38 property is made in accordance with the rules provided in section 48.

  Section 48(a)(1)(B) of the Code defines section 38 property to include other tangible property (not including a building and its structural components) if the property is used in connection with a qualifying activity for the bulk storage of fungible commodities.

  Section 1.48-1(d)(1) of the Income Tax Regulations provides, in part, that in addition to "tangible personal property," any other tangible property (but not including a building or its structural components) that constitutes a research or a storage facility, used in connection with any of the activities specified therein, may qualify as section 38 property.

  Section 1.48-1(d)(5)(i) of the regulations states that if property (other than a building and its structural components) constitutes a research or storage facility and if it is used in connection with a qualifying activity, such property may qualify as section 38 property even though it is not used as an integral part of such activity.  Examples of storage facilities include oil and gas tanks and grain storage bins.

  Section 1.48-1(e)(1) of the regulations provides that buildings and structural components thereof do not qualify as section 38 property and defines the term "building" generally as a structure or edifice enclosing a space within its walls and usually covered by a roof, the purpose of which is to provide shelter or housing, or to provide working, office, parking, display, or sales space.  The term "building" includes such structures as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, and stores.

  Rev. Rul. 66-89, 1966-1 C.B. 7, gives examples of farm improvements that may qualify as section 38 property.  Example 5 concerns storage facilities and states that if property (other than a building and its structural components) is a storage facility used in farming such as the cultivation of the soil or the raising of livestock and if the facility cannot be reasonably adapted to other uses, it qualifies as "other tangible property" within the meaning of section 48(a)(1) of the Internal Revenue Code, regardless of whether it is a temporary or a permanent facility.  The ruling states that typical storage facilities on farms include grain storage bins, corn cribs and silos and that such structures are to be distinguished from farm buildings that do not qualify as section 38 property, such as barns, stables, etc.

  In Monk & Co., Inc. v. United States, 686 F.2d 1058 (4th Cir.1982), taxpayer, a tobacco exporter, built a plant in which to store and process tobacco. Included in the plant was a large green storage room used to receive, re-grade, and store tobacco.  In claiming an investment credit for the cost of the structure attributable to the storage room, taxpayer argued that the green room did not function as a building but rather was a facility for the bulk storage of fungible commodities and was thus eligible for the

credit under section 48(a)(1)(B)(iii).  The court found that first a determination must be made whether the structure is a building.  The court stated that to resolve the question whether a structure is a building or a storage facility it is appropriate to focus on whether the structure provides alternate uses.  If a structure can only be used to store one type of commodity and has no other feasible use, it does not function as a building.  Applying that test, the court concluded that taxpayer's structure was ineligible for the credit because the room was adaptable to other uses.

  Section 48(a)(1)(B) of the Code permits a structure to qualify as section 38 property if it is not a building and constitutes a facility used in connection with a qualifying activity for the bulk storage of a fungible commodity. Section 1.48-1(e)(1) of the regulations defines the term "building" and states that buildings do not qualify as section 38 property.

  Whether a structure is reasonably adaptable to other uses is determined, on a case-by-case basis, by the degree of specialization of the structure, by the amounts of space available for alternative uses, the economic cost required to convert the facility from one use to another, and the feasibility of other uses.  The structure in the instant case has a floor, walls, is covered by a roof and has the appearance of a building.  It can be used to store more than one type of commodity, or can be adapted to other uses.  Therefore, the structure is a building and does not qualify for the investment tax credit.

HOLDING

  The structure, which is used for the bulk storage of a fungible commodity but can be reasonably adapted to other uses, is a building and is not "section 38 property."

EFFECT ON OTHER DOCUMENTS

  Rev. Rul. 71-359, 1971-2 C.B. 61, concludes that certain peanut storage facilities qualify for the investment tax credit even though the taxpayer was not engaged in the business of growing peanuts.  No mention is made of the requirement that the facilities cannot be reasonably adaptable to other uses.

  Rev. Rul. 71-359 is modified to state that the structures described in the revenue ruling will qualify as section 38 property only if they cannot be reasonably adapted to other uses.

Rev. Rul. 84-60, 1984-1 C.B. 13, 1984-17 I.R.B. 7.