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Subpart A.-Income Taxes
Chapter 1.- Normal Taxes and Surtaxos
Subchapter A.-Determination of Tax Liability
Part IV.-Credits Against Tax
Subpart A.-Credits Allowable

Section 38.-Investment in
Certain Depreciable Property
26 CFR 1.38-1: Investment in certain de-
preciable property.

Appropriate year for recomputation of the investment credit previously taken on a pollution control facility that was amortized under section 169 of the Code. See Rev. Rul. 77-76 page 4.

Subpart B.-Rules for Computing Credit for
Investment in Certain Depreciable Property

Section 47.–Certain
Dispositions, Etc., of Section 38
Property
26 CFR 1.47-1: Recomputation of credit
allowed by section 38.

Appropriate year for recomputation of the investment credit previously taken on a pollution control facility that was amortized under section 169 of the Code. See Rev. Rul. 77-76 page 4.

"section 38 property" for investment duction, or extraction, or furnishing credit purposes.

transportation, communications, elecThe taxpayer is a construction com- trical energy, gas, water, or sewage dispany that owns office trailers of vari posal services, or constitutes a research ous sizes. The trailers generally are or storage facility used in connection 20-36 feet in length, 8-12 feet in width, with any of the foregoing activities. and 7 feet in inside height. They are To qualify as section 38 property, the usually fitted with a desk, plans table, property must also be property with plans rack, and similar items. The door respect to which depreciation is alor doors are wider and the frame lowable and must have a useful life heavier than similar features of a of 3 years or more. house trailer. Heating is standard and Section 1.48-1(c) of the Income air conditioning is generally optional. Tax Regulations provides, in part, that The larger trailers are divided into the term “tangible personal property" two or more offices.

means any tangible property except The trailers are used as offices at land and improvements thereto, such the site of highway construction jobs. as buildings or other inherently perThey are generally set upon blocks manent structures including their with their wheels removed. They are structural components. not affixed to the ground and can be In the case of Joseph Henry Moore, moved at any time. One trailer is used 58 T.C. 1045 (1972), aff'd per by company personnel and another curiam, 489 F. 2d 285 (5th Cir. 1973), trailer by the state inspector. The office the United States Tax Court held that trailer used by company personnel rental mobile homes in a trailer park is moved to different locations on the that were never affixed to the land job as the work progresses. The office and remained at all times movable trailer used by the state inspector re- were tangible personal property and mains at one location for the duration not improvements to the land. In the of the job. It is then moved to the site Moore case, however, the mobile of another project. The average time homes did not qualify as section 38 the trailers remain in any location is property because they were used priabout 1 year.

marily to furnish lodging. See SecThe trailers are depreciable prop- tion 48(a) (3) of the Code. erty and have a useful life of 3 years Rev. Rul. 75-178, 1975-1 C.B. 9, or more.

holds that the classification of propSection 38 of the Internal Revenue erty as “personal” or “inherently Code of 1954 allows a credit against permanent” should be made on the Federal income tax for qualified in- basis of the manner of attachment to vestment in section 38 property. The the land or the structure and how determination of what property quali- permanently the property is designed fies as "section 38 property” is made to remain in place. It is stated therein in accordance with the rules provided that the use of a functional or equivin section 48.

alency test to classify property (1) Section 48(a)(1) of the Code pro- as inherently permanent when it is vides, in part, that the term "section not itself physically attached to the 38 property' means tangible personal land, or (2) as a structural compoproperty, or other tangible propertynent when it is not an integral part (not including a building and its struc- of (and therefore a permanent part tural components), but only if the of) a building, is no longer the criother tangible property is used as an teria to be used to classify property. integral part of manufacturing, pro- In the instant case, the functional

permanf the mine stry

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

Investment credit; construction
site trailers. Movable trailers, used
as on-site offices by a construction
company, that remain on location
for an average of one year and qual-
ify as depreciable property with a
useful life of over 3 years are tangi.
ble personal property within the
meaning of section 1.48-1(c) of the
regulations and qualify as section
38 property for investment credit
purposes.
Rev. Rul. 77-8

Advice has been requested whether, under the circumstances described be low, trailers used as offices qualify as

and its salvage value wasset

place, but remain easily to remain in

use of the trailers as offices does not automatically classify them as buildings. It must be determined whether the trailers are permanent improvements to the land.

The trailers are neither affixed to the land nor designed to remain in place, but remain easily movable and in fact, are moved on the average once a year. Therefore, the trailers are not permanent improvements to the land.

Accordingly, in the instant case, the office trailers are tangible personal property within the meaning of section 1.48-1(c) of the regulations, and qualify as section 38 property for investment credit purposes.

26 CFR 1.48-1: Definition of section 38
property.
(Also Sections 38, 47, 169; 1.38-1, 1.47-1,
1.169-4.)

Investment tax credit; pollution
control facility subsequently amor.
tized. A corporation that took a de-
preciation deduction and an invest
ment tax credit in its 1973 taxable
year return for a new certified pollu-
tion control facility, and in its 1974
tax return elected to take amortiza-
tion deductions under section 169
(a) of the Code, must correct its
1973 return so that no investment
tax credit is claimed.
Rev. Rul. 77-76

Advice has been requested whether the taxpayer, under the circumstances described below, is required under section 47(a)(1) of the Internal Revenue Code of 1954 to recapture investment tax credit taken on a pollution control facility amortized under section 169 in the year in which the section 169 election is made, or whether the taxpayer's return for the year in which the investment tax credit was orignally claimed is to be corrected, claiming no investment tax credit on the facility.

On January 30, 1973, corporation X, that uses the calendar year as its taxable year, completed the installation of a facility that was new section

38 property and all of which qualified effect prior to amendment by the Ta
as a certified pollution control facility Reform Act of 1976 provides, in part,
within the meaning of section 1.169-2 that any property with respect to
(a) of the Income Tax Regulations. which an election under section 169
The cost of the facility was 100x dol- applies shall not be treated as section
lars, its salvage value was 8x dollars, 38 property to the extent that the ad-
and its useful life was 10 years. X justed basis of the property constitutes
did not elect under section 169(b) of the amortizable basis for purposes of
the Code to take an amortization de section 169.
duction with respect to such facility Section 1.169(a)(1) of the regula-
for 1973, but instead took a deprecia- tions provides that a taxpayer may
tion deduction under sections 167 and elect to take an amortization deduction
179, of 11x dollars (the amount allow- with respect to a certified pollution
able, of which 2x dollars is for addi- control facility. The taxpayer may be-
tional first-year depreciation under gin the 60 month amortization period
section 179). X also claimed an invest- either with the month following the
ment tax credit of 7x dollars under sec- month in which the facility is com-
tion 46 on its tax return for 1973. pleted or acquired, or with the first

However, in a statement attached to month of the taxable year succeeding
its tax return for 1974, X elected to the taxable year in which such facility
take amortization deductions under is completed or acquired.
section 169(a) of the Code with re- Section 1.169-4(a)(3) of the regula-
spect to the facility and to begin the tions provides, in part, that a taxpayer
60-month amortization period with that does not elect in the prescribed
January 1, 1974. X eliminated the manner to take amortization deduc-
amortizable portion of the cost from tions with respect to a certified pollu-
the depreciable base, but made no cor- tion control facility shall not be en-
rection for the investment tax credit titled to such deductions.
taken in 1973.

Congressional intent with regard to Section 38 of the Code allows a the situation described in the instant credit against Federal income tax for case is indicated in H.R. Rep. No. qualified investment in "section 38 92-533, 92nd Cong., 1st Sess. 21, property”.

(1971), 1972-1 C.B. 498, 509. Section 47(a) (1) of the Code states The report states that “[i]f the that if during any taxable year any amortization election is made subse. property is disposed of or otherwise quent to the allowance of the credit, ceases to be section 38 property with the credit is to be retroactively denied respect to the taxpayer before the close for the year in which it was previously of the useful life that was taken into allowed." This same phrase appears in account in computing the credit under S. Rep. No. 92-437, 92nd Cong., 1st Section 38, then the tax under this Sess. 33, (1971), 1972-1 C.B. 559, 577. chapter for such taxable year shall be On the tax return filed in 1973, increased by an amount equal to the X claimed the investment tax credit aggregate decrease in the credits als on the entire basis of the pollution lowed under section 38 for all prior control facility. However, the subtaxable years that would have resulted sequent election to amortize the desolely from substituting, in determin- preciable base beginning in the first ing qualified investment, for such use- month of the first taxable year after ful life the period beginning with the the property is placed in service retime such property was placed in serv- quires that the property to which the ice by the taxpayer and ending with election applies shall not be treated as the time such property ceased to be section 38 property pursuant to secsection 38 property.

tion 48(a) (8) of the Code as in effect Section 48(a) (8) of the Code as in prior to amendment by the Tax Re

return

rected, so the year 1973

form Act of 1976, and the investment pipeline that the taxpayer operates for nection with any of the foregoing actax credit is retroactively denied for the benefit of itself and two co-owning tivities. To qualify as "section 38 prop1973, the year in which it was pre- distribution utilities to which it sells erty", the property must also be propviously allowed.

gas. (The 50-mile pipeline connects an erty with respect to which depreciation Accordingly, in the instant case, the interstate gas transmission supply pipe- is allowable and must have a useful taxpayer's Federal income tax return line with the point of entry into the life of 3 years or more. for the taxable year 1973 is to be taxpayer's distribution system proper, Section 1.48-1(e) (1) of the Income corrected, so that no investment tax and with the LNG facility); (2) LNG Tax Regulations provides, in part, credit is claimed for the pollution machinery and equipment; (3) an that buildings and structural compocontrol facility. The amended return LNG storage tank; and (4) an LNG nents thereof do not qualify as section for the taxable year 1973 will continue facility control house that contains 38 property. The term "building" to show a depreciation deduction of equipment necessary to control the op- means any structure or edifice enclos12x dollars.

eration and that is substantially con- ing a space within its walls, and usustructed of concrete, steel beams, and ally covered by a roof, the purpose of

masonry. The LNG facility liquefies which is, for example, to provide shel26 CFR 1.48-1: Definition of section 38 property.

and stores excess natural gas, received ter or housing, or to provide working,

in off-peak periods, for subsequent va office, parking, display, or sales space. Investment credit; public utili

porization and distribution through The term incudes, for example, structies; liquefied natural gas facility the local distribution area.

tures such as apartment houses, faccontrol house. A liquefied natural

The LNG control house is a struc- tory and office buildings, warehouses, gas facility control house, an en

ture enclosing space within its walls barns, garages, railway or bus stations, closed structure that provides shel

and covered by a roof. It is equipped and stores, but does not include a ter and housing for the control

for the accommodation of service per structure that is essentially an item of equipment, general storage space,

sonnel with light, heat, communica- machinery or equipment or that houses and working space for mainte

tion, and sanitary facilities. One room property used as an integral part of an nance, operation, and control of the

is air conditioned, contains light fix- activity such as furnishing certain facility is a "building" as defined in

tures adequate for reading, and desks public services, including gas, if the section 1.48-1(e) of the regulations

and working space for the plant oper- use of the structure is so closely related and does not qualify as section 38

ators. There is a combination locker to the use of such property that it property.

room and workshop, a tool and equip- clearly can be expected to be replaced Rev. Rul. 77-106

ment storage room, and another stor when the property it initially houses is

age room. The structure houses such replaced. Advice has been requested whether, equipment as gauges and recording in

equipment as gauges and recording in The LNG control house structure under the circumstances described be- struments for temperature and pres- has the attributes of a building. It is low, a liquefied natural gas (LNG) sure, electrical and fire alarm control equipped for accommodation of servfacility control house containing equip- panels, electrical generators (gas en- ice personnel with light, heat, commument necessary to control the opera- gine driven), steam generators (gas nication, and sanitary facilities adetion of the LNG facility described in fired), and piping, electrical conduits quate to maintain and control the Rev. Rul. 76-268, 1976-2 C.B. 7, is and control wiring leading to the LNG plant operation. Of special significance a building for investment credit pur process structures.

concerning the LNG control house is poses.

Section 48(a) (1) of the Internal that it is a structure enclosing a space As stated in Rev. Rul. 76-268, the Revenue Code of 1954 provides, in within its walls, is covered by a roof, taxpayer is an intrastate rate-regulated part, that the term "section 38 prop- and has the purpose of providing shelgas utility, subject to the regulatory erty” means tangible personal prop- ter and housing for the control equipjurisdiction of the state public service erty, or other tangible property (not ment, general storage space, and workcommission, that operates about 2,500 including a building and its struc- ing space for maintenance, operation, miles of gas distribution lines. The tax- tural components) but only if the and control of the LNG facility, thus payer operates an LNG facility, with other tangible property is used as an meeting the specific definition of a a pressure range in excess of 125 integral part of manufacturing, pro- building found in section 1.48-1(e) of pounds per square inch gauge (psig) duction, or extraction, or of furnishing the regulations. See Rev. Rul. 72-398, within its distribution area, consisting transportation, communications, elec- 1972-2 C.B. 9, and Rev. Rul. 73-281, of the following components: (1) a trical energy, gas, water, or sewage 1973-2 C.B. 7, which hold that a conshort section of pipeline spur that con- disposal services, or constitutes a re- crete block structure housing communects the LNG facility with a 50-mile search or storage facility used in con- nications equipment and an electrical

vode.

substation enclosure, respectively, are program administered by the Mari Internal Revenue Service and buildings for investment credit pur- time Administration were “construc Others Concerned: poses. ted” rather than "acquired” by the

Preamble Accordingly, in the instant case the taxpayer within the meaning of sectaxpayer's LNG facility control house tion 48(b) of the Code.

This document contains temporary is a building for investment credit pur

income tax regulations (26 CFR Part

The United States Court of Claims, poses.

7) relating to the election to have the in the Lykes Bros. Steamship Co., Inc.

investment credit for movie and telev. United States, 513 F.2d 1342 (Ct.

vision films determined in accordance 26 CFR 1.48-1: Definition of section 38 Cl. 1975) and Pacific Far East Line,

with previous litigation under section property. Inc. v. United States, 513 F.2d 1355

804(c)(3) of the Tax Reform Act of Whether certain relocatable classroom

(Ct. Cl. 1975), held that the taxpay- 1976 (Pub. L. 94-455, 90 Stat. 1595 units are “section 1250 property" so that ers had “acquired” such vessels within only the methods of depreciation prescribed

[1976-3 C.B. (Vol. 1) 71]). in section 167(j) (1) are allowable. See the meaning of section 48(b) of the

Under section 804(c)(3) of the Rev. Rul. 77-21, page 251. Code in factual situations similar to

Tax Reform Act of 1976, any taxpayer that in Rev. Rul. 68-445. The Internal Revenue Service will

who filed an action in any court of 26 CFR 1.48-2: New section 38 property.

competent jurisdiction before January follow Lykes Bros. and Pacific Far Investment credit; vessels; con- East in cases with identical factual sit

1, 1976, for a determination of such struction v. acquisition. The Service uations. However, with respect to the

taxpayer's rights to investment credit will follow the Lykes Bros. Steam application of section 48(b) of the

under section 38 of the Internal Rev

enue Code of 1954 with respect to any ship Co., Inc. and Pacific Far East Code to other factual situations, tax

film placed in service in any taxable Line, Inc. decisions, holding that payers engaging the services of concertain vessels built in accordance tractors to construct property for use

year beginning before January 1, 1975, with plans and specifications pre- in taxpayers' businesses may be treated

may elect to have investment credit on pared by a taxpayer to meet the as having constructed such property

all films placed in service in taxable requirements of the Maritime Ad- themselves where the facts and cir

years beginning before January 1, ministration were "acquired" cumstances show sufficient involve

1975 (except those subject to an elecrather than "constructed" by the ment of the taxpayers in the construc

tion under section 804(e) (2) of the

Act) determined as though section 804 taxpayer for investment credit pur tion.

of the Act (except section 804(c)(3) poses. However, under different

Rev. Rul. 68-445 is revoked.

of the Act) had not been enacted. factual situations, taxpayers engaging contractors to construct section

Section 804(c)(3) (D) of the Act 38 property may be treated as hav

provides that the election shall be ing constructed the property them

26 CFR 7.48-1: Election to have invest made by filing a notification of such

ment credit for movie and television films selves where there is sufficient in

election with the National Office of determined in accordance with previous volvement of the taxpayers in the litigation.

the Internal Revenue Service. In order construction. Rev. Rul. 68-445 re- T.D. 7449

to provide taxpayers who may wish to voked.

make this election assurance that they TITLE 26.—INTERNAL REVE- do so properly, paragraph (b) of Rev. Rul. 77-107

NUE.—CHAPTER I, SUBCHAP- § 7.48-1 of the regulations contained in Reconsideration has been given to

TER A, PART 7.-TEMPORARY this Treasury decision provide a perRev. Rul. 68-445, 1968-2 C.B. 40,

INCOME TAX REGULATIONS missible, but not mandatory, means of

UNDER THE TAX REFORM making the election. which considered whether certain vessels were “constructed" or "acquired"

ACT OF 1976

Adoption of regulations within the meaning of section 48(b) Election to have investment credit In order to prescribe temporary inof the Internal Revenue Code of 1954, for movie and television films deter- come tax regulations under the Tax relating to the definition of “new sec- mined in accordance with previous Reform Act of 1976 (26 CFR Part 7) tion 38 property”, for investment litigation.

relating to the means of making the credit purposes.

election to have the investment credit

DEPARTMENT OF THE TREASURY, Rev. Rul. 68-445 holds that ocean

OFFICE OF COMMISSIONER OF

for movie and television films detercargo vessels built by an independent

INTERNAL REVENUE, mined in accordance with previous litshipbuilder under contract with the

Washington, D.C. 20224.

igation under section 804(c)(3) of the taxpayer and under a Federal subsidy To Officers and Employees of the Tax Reform Act of 1976 (Pub. L.

911), th herebyched at .1445,

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ulation C.B.

94-455, 90 Stat. 1595 (1976-3 C.B. Attention: CC:RL:Br2, Room 4617, UNDER THE TAX REFORM (Vol. 1) 71]), the following temporary 1111 Constitution Avenue, N.W., ACT OF 1976 regulations are hereby adopted and Washington, D.C. 20224. added to Part 7, established at 41 F.R.

Investment credit for movie and

(c) Time for making the election. 55344, December 20, 1976 [T.D. 7445,

television films placed in service in a The election under section 804(c)(3) taxable year beginning before January page 176, this Bulletin).

of the Act must be made not later 1, 1975, which are subject to the § 7.48-1 Election to have investment than January 3, 1977. If mailed, the forty-percent election.

credit for movie and television films cover containing the notification of determined

AGENCY: Internal Revenue Service, in accordance with such election must be postmarked not

Treasury. previous litigation.

later than January 3, 1977. (a) Generally. Under section 804 (d) Revocation of election. An elec- ACTION: Temporary regulations. (c)(3) of the Tax Reform Act of tion under section 804(c)(3) of the SUMMARY: This document con1976 (Pub. L. 94-455, 90 Stat. Act, once made, shall be irrevocable.

tains temporary regulations providing 1595), any taxpayer who filed an

Because of the need for immediate rules for taxpayers to use in electing action in any court of competent jurisdiction before January 1, 1976,

guidance with respect to the provisions the forty-percent method of deter

contained in this Treasury decision, it mining investment credit for movie for a determination of such taxpayer's rights to investment credit under sec

is found impracticable to issue it with and television films placed in service tion 38 of the Internal Revenue Code

notice and public procedure thereon in a taxable year beginning before

under subsection (b) of section 553 January 1, 1975. This election is proof 1954 with respect to any film placed

of title 5 of the United States Code or vided for under section 804(c)(2) of in service in any taxable year begin

subject to the effective date limitation the Tax Reform Act of 1976 [Pub. L. ning before January 1, 1975, may elect

94-455, 1976-3 C.B. (Vol. 1) 71]. to have investment credit on all films

of subsection (d) of that section. placed in service in taxable years be- (This Treasury decision is issued

These regulations affect all taxpayers

desiring to make the forty-percent elecginning before January 1, 1975 (ex. under the authority contained in sec.

tion and provide them with the guidcept those subject to an election under tion 7805 of the Internal Revenue section 804(e) (2) of the Act), deter- Code of 1954 (68A Stat. 917; 26

ance needed to make the election. mined as though section 804 of the U.S.C. 7805)).

DATE: The election must be made Act (except section 804(c)(3) of the

not later than April 4, 1977. Act) had not been enacted.

William E. WILLIAMS,

Deputy Commissioner FOR FURTHER INFORMATION (b) Manner of making the election.

of Internal Revenue. CONTACT: James W. Corbitt, Jr. of The election allowed by section 804

the Legislation and Regulations Divi(c)(3) of the Act may be made by a Approved December 22, 1976.

sion, Office of the Chief Counsel, notification in the form of a letter WILLIAM M. GOLDSTEIN,

Internal Revenue Service, 1111 Consigned by the taxpayer or an author Acting Assistant Secretary

stitution Avenue, N.W., Washington, ized representative of the taxpayer of the Treasury.

D.C. 20224 (Attention: CC:LR:T) stating:

(Filed by the Office of the Federal Register (202-566-3458). (1) The taxpayer's name, address, on December 22, 1976, 4:44 p.m., and

published in the issue of the Federal and identification number;

SUPPLEMENTARY INFORMARegister for December 29, 1976, 41 F.R. TION: (2) The taxable years in which the 56629) films were placed in service with re

BACKGROUND spect to which the election shall apply;

This document contains temporary and

26 CFR 7.48-2: Election of forty-percent regulations relating to election of the (3) The court in which the litiga

method of determining investment credit forty percent method of determining tion was commenced and information for movie and television films placed in adequate to identify the particular liti- service in a taxable year beginning before

investment credit for movie and telegation, for example, the names of the

January 1, 1975.
manu

vision films placed in service in a taxlitigants, the date the suit was com- T.D. 7474

able year beginning before . January

1, 1975. This election is provided for menced, and the court case or docket

TITLE 26.—INTERNAL REVE-
TT

under section 804(c) (2) of the Tax number of the litigation.

NUE.—CHAPTER I, SUBCHAP. Reform Act of 1976 (Pub. L. 94-455, The letter should be sent to the Dep- TER A, PART 7.-TEMPORARY 90 Stat. 1595). uty Commissioner of Internal Revenue, INCOME TAX REGULATIONS Generally, under section 804(c)(2)

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