25

ROBERT AND KIMBERLY BROZ, PETITIONERS v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket No. 21629–06. Filed July 7, 2011. 

Ps were shareholders in a wholly owned S corporation (S) 

engaged in providing wireless cellular service. The parties dispute the length in years of the recovery period that S must 

use to calculate its annual depreciation deduction for the 

wireless cellular assets. Wireless cellular assets include 

antenna support structures, cell site equipment and leased 

digital equipment. Held: We apply the plain language of sec. 

168, I.R.C., in interpreting classification issues of first impression. The plain language of Rev. Proc. 87–56, 1987–2 C.B. 

674, the revenue procedure in effect for the years at issue, is 

unambiguous as it applies to S’s wireless cellular assets. Held: 

The antenna support structures fall within asset class 48.14 

with a recovery period of 15 years, as specified in Rev. Proc. 

26 137 UNITED STATES TAX COURT REPORTS (25) 

1 Respondent determined a $100,003 deficiency for 1996, a $4,671,608 deficiency for 1998, a 

$3,385,533 deficiency for 1999, a $4,954,056 deficiency for 2000, and a $3,395,214 deficiency for 

2001. 

2We note that the Internal Revenue Service has since provided updated class life guidance 

for the ever-changing cellular service industry. Rev. Proc. 2011–22, 2011–18 I.R.B. 737, applies 

for years after the years at issue. 

87–56, supra. The cell site equipment, excluding the switch, 

and the leased digital equipment fall within asset class 48.12 

with a recovery period of 10 years. Id.

Stephen W. Feldman and Eric T. Weiss, for petitioners. 

Meso T. Hammoud, Elizabeth Rebecca Edberg, and Steven 

G. Cappellino, for respondent. 

KROUPA, Judge: Respondent determined over $16 million of 

deficiencies 1 in petitioners’ Federal income tax for 1996, 

1998, 1999, 2000 and 2001 (the years at issue). 

In this report we decide whether RFB Cellular, Inc. (RFB), 

an S corporation petitioners wholly owned, is entitled to certain depreciation deductions for wireless cellular equipment. 

Specifically, we must determine whether petitioners properly 

classified antenna support structures, cell site equipment 

and leased digital equipment for depreciation purposes. 2 We 

find that they did not. A forthcoming report will address the 

remaining seven issues. 

FINDINGS OF FACT 

Some of the facts have been stipulated and are so found. 

We incorporate the stipulation of facts and the accompanying 

exhibits by this reference. Petitioners resided in Gaylord, 

Michigan at the time they filed the petition. 

Overview of RFB Cellular, Inc.

Petitioner husband (petitioner) formed RFB Cellular, Inc. 

(RFB), a wholly owned S corporation, in 1991. RFB was 

engaged in providing wireless cellular service during the 

years at issue. Petitioner had many years of experience with 

the cellular industry before he formed RFB. He was president 

of Cellular Information Systems (CIS), a cellular company. 

Petitioner also served as a board member to the Cellular 

Telephone and Internet Association (CTIA) and was involved 

with lobbying efforts on behalf of the cellular industry.

(25) BROZ v. COMMISSIONER 27

Overview of the Cellular Industry

The Federal Communications Commission (FCC) administers the radio-frequency spectrum on which cellular carriers operate wireless networks. The FCC issues licenses for 

wireless networks to operate on specific broadcast frequencies on the spectrum. The licenses are further limited to 

a specific geographic area. 

A cellular network is operated on a grid that divides the 

geographic region covered by the license into smaller cells 

(cell sites). The size of the cells depends on the anticipated 

amount of cellular traffic. In urban areas, the cells are 

smaller to maximize network capacity. In rural areas where 

capacity is less of a concern, such as those areas in Michigan 

where RFB operated its cellular networks, the cells are larger 

to provide more coverage. The cell site structure enables the 

cellular carrier to reuse a limited number of broadcast frequencies across the geographic region. 

RFB provided cellular service to two license areas, and 

operated approximately 75 cell sites, on the Michigan peninsula during the years at issue. Most of RFB’s revenue came 

from roaming charges for the use of the Michigan networks. 

RFB would make its networks available to customers of other 

carriers who were traveling within the geographic area of the 

licenses. RFB and other carriers sent their receivables and 

payables to a clearinghouse that would sort out the charges 

and payments and issue a bill to each carrier. 

Operation of the Cellular Network

The three basic components of a cellular network are (1) 

the base station, which includes towers, antennas and 

related electronic equipment; (2) transmission facilities 

between the base station and the switch; and (3) the switch. 

Cellular carriers added onto the existing assets to update 

from analog to digital cellular technology.

A. The Antenna Support Structures

Signals from the cellular user travel from the cellphone to 

the antenna. The antenna is mounted on a free-standing 

tower so that it can transmit and receive signals across great 

distances. The height of the tower also reduces interference 

with radio signals from trees and tall buildings. The tower 

28 137 UNITED STATES TAX COURT REPORTS (25) 

is strong enough to support the weight of the antenna and 

related equipment, plus accumulated ice and snow. The 

tower is also built to withstand high winds. 

RFB constructed some of its towers on top of preexisting 

structures to prevent the obstruction of the antennas. RFB

used the same towers for many years, and it would simply 

switch the antenna and related equipment when it stopped 

working or became obsolete. 

B. The Base Station

The base station is located at or near the base of the tower. 

The cell phone searches for a signal from the closest base 

station before a call is made. The signal from the base station is what gives the cell phone service or ‘‘bars’’. The cell 

phone then sends a radio signal to the base station identifying the user and the user’s location. A radio transmitter in 

the cell phone converts the user’s speech into strings of ones 

and zeroes that can be transmitted as radio signals to the 

antenna. 

The base station contains a two-way radio that converts 

the radio signal from the cellphone to a form that can be 

transmitted over wire or optical fiber to the switch. The radio 

also converts the signal from the switch to a radio signal that 

can be transmitted to the cellular user. The radio contains 

some computerized parts, including a computerized component that amplifies the radio signals. The base station contains some switching software so it can route the calls if the 

switch no longer functions. 

The base station is housed in a small equipment shelter. 

RFB typically leased the land beneath the equipment shelters for 25 years, with 5-year renewals. The equipment

shelters were prefabricated from concrete slabs and were 

approximately 8 to 10 feet wide by 10 to 12 feet long. The 

equipment shelters were very heavy, and, like the towers, 

they were designed to remain in service for many years. The 

equipment shelters did not need to be replaced when the 

base station equipment was replaced. Instead, RFB would 

simply switch out the base station equipment when it no 

longer functioned or became obsolete. The equipment shelters 

had air conditioning, temperature alarm systems, fire/smoke 

alarm systems, and intruder alarm systems. 

(25) BROZ v. COMMISSIONER 29

C. The Switch

The switch, which is the technological descendant of the 

switchboard, is a computer system that routes the cellular 

calls. Wireless calls are typically transmitted to the switch 

from the base station over a landline or radio network. The 

switch is connected to the landline and other carriers. It 

determines how to route the call based on the number that 

is dialed. The switch also maintains billing records and monitors the base stations. One switch can serve as many as 200 

base stations. 

The Transition From Analog to Digital Technology

RFB initially provided analog cellular service. It began, 

however, updating its equipment to provide digital service. 

The digital equipment could handle approximately eight 

times as many calls as the analog service. The digital technology also provided customers with additional services. 

These additional services included the ability to text, send 

pictures, download ring tones and access the Internet. Moreover, the FCC eventually required that all cellular carriers 

phase out analog service and upgrade to newer digital technology. 

RFB acquired and installed the leased digital equipment so 

it was ready for use in 2000. RFB decommissioned its analog 

equipment soon after the FCC mandated the switch to digital. 

RFB’s Returns for the Years at Issue

RFB claimed depreciation deductions for wireless cellular 

equipment during the years at issue. RFB did not specifically 

identify the items being depreciated but instead classified 

items into generic categories, such as ‘‘switch equipment’’ 

and ‘‘cellular equipment’’. 

RFB included all costs for towers, antennas, equipment 

shelters and related land improvements in the ‘‘antenna support structure’’ asset class. RFB depreciated the antenna support equipment over seven years under asset class 48.32. RFB

classified a wide variety of equipment, including the switch 

and the base station, as ‘‘cell site equipment.’’ RFB depreciated the cell site equipment over five to seven years under 

asset class 48.121. RFB depreciated the leased digital equipment over five years under asset class 48.121. RFB included 

30 137 UNITED STATES TAX COURT REPORTS (25) 

3 All section references are to the Internal Revenue Code in effect for the years in issue unless 

otherwise indicated. 

costs for concrete, excavating, steel, fencing and construction 

in the leased digital equipment category. 

Respondent issued the deficiency notice disallowing the 

depreciation deductions. Respondent determined that the 

antenna structures should be depreciated over 15 years 

under asset class 48.14, rather than the seven years petitioners claimed. Respondent also determined that the cell 

site equipment and the leased digital equipment, other than 

the switch, should be depreciated over 10 years under asset 

class 48.12, rather than the five years petitioners claimed. 

Petitioners timely filed a petition. 

OPINION 

We are asked to determine the appropriate class life for 

the ever-changing cellular phone industry. The parties disagree over the characterization of certain wireless cellular 

equipment for depreciation purposes. There are three categories of equipment at issue: (1) antenna support structures, 

(2) cell equipment and (3) leased digital equipment. We begin 

by discussing depreciation generally, then address each 

equipment category in turn. 

I. Depreciation Generally

A reasonable allowance for depreciation is allowed under 

section 167 3 for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or held for the 

production of income. The depreciation deduction is based on 

the adjusted basis of the property, as determined under section 1011 for the purpose of determining gain on the sale or 

other disposition of the property. Sec. 167(c). 

Depreciation deductions were based on the estimated useful life of the property before 1981. The useful life was the 

period for which the taxpayer expected to use the asset in his 

or her trade or business, and did not necessarily correspond 

with the economic life of the asset. Sec. 1.167(a)–1(b), Income 

Tax Regs. Congress abandoned the useful life concept in 1981 

and adopted the accelerated cost recovery system (ACRS) in 

effect today. See Grinalds v. Commissioner, T.C. Memo. 

1993–66. ACRS allows greater depreciation for taxpayers 

(25) BROZ v. COMMISSIONER 31

4Sec. 167(m) was deleted from the Code by the Omnibus Budget Reconciliation Act of 1990, 

Pub. L. 101–508, sec. 11812(a)(1), 104 Stat. 1388–534. Sec. 167(m) essentially codified the Asset 

Depreciation Range system described in sec. 1.167(a)–11, Income Tax Regs., and in particular 

the system of asset guideline classes and periods found there. See H. Rept. 92–533, at 30–35 

(1971), 1972–1 C.B. 498, 514–516; S. Rept. 92–437, at 45–52 (1971), 1972–1 C.B. 559, 584–588. 5Petitioners contend that respondent’s expert improperly relied on the FCC’s USOA classification to classify the cellular equipment. Petitioners’ argument overlooks that Rev. Proc. 87–56, 

1987–2 C.B. 674, 684, specifically references the USOA classification regime. Rev. Proc. 87–56, 

supra, adopts the FCC’s classification regime for certain types of assets. We find the adoption 

reasonable given the FCC’s experience and expertise in telecommunications. Furthermore, the 

reference to the USOA in Rev. Proc. 87–56, supra, is a shorthand way of referring to related 

Continued

through shortened depreciation periods and simplifies depreciation calculations by reducing the number of property 

classes. S. Rept. 97–44, at 47 (1981), 1981–2 C.B. 412, 425. 

Congress modified ACRS (MACRS) in 1986 by prescribing 

mandatory depreciation methods for each ACRS class. See 

Grinalds v. Commissioner, supra. 

The Secretary has the authority to prescribe class lives for 

each class of property. See sec. 167(m). 4 The class lives are 

intended to reasonably reflect the anticipated useful life of 

that class of property to a particular industry or other group. 

Id. The guideline classes and periods (lives) are ‘‘established, 

supplemented, and revised’’ as necessary. Sec. 1.167(a)–

11(b)(4)(ii), Income Tax Regs. The class lives of depreciable 

assets can be found in a series of revenue procedures issued 

by the Secretary. See id.

The revenue procedure in effect for the years at issue is 

Rev. Proc. 87–56, 1987–2 C.B. 674. Rev. Proc. 87–56, supra, 

divides assets into two broad categories: (1) Asset guideline 

classes 00.11 through 00.4, consisting of specific depreciable 

assets used in all business activities (the asset category), and 

(2) asset guideline classes 01.1 through 80.0, consisting of 

depreciable assets used in specific business activities (the 

activity category). The asset category takes priority over the 

activity category if an asset is listed in both categories. See 

Norwest Corp. & Subs. v. Commissioner, 111 T.C. 105, 158 

(1998). ‘‘Telephone Communications’’ is listed as an activity 

in Rev. Proc. 87–56, 1987–2 C.B. at 684. The telephone 

communications category includes assets identified in asset 

classes 48.11 through 48.14 and used to provide commercial 

and contract telephone services. Id.

The various classes of telephone equipment are defined by 

reference to the FCC’s Uniform System of Accounts for Class 

A and Class B Telephone Companies (USOA). 5 Id.; see also 47 

32 137 UNITED STATES TAX COURT REPORTS (25) 

types of equipment. The Secretary ultimately determines the class lives. 

6The revision changed the relevant account numbers but did not make significant substantive 

changes to the classification categories. 

7 In Sprint Corp. & Subs. v. Commissioner, 108 T.C. 384, 402 (1997), the date was Jan. 1, 

1981, pursuant to former sec. 168(g)(2). We noted that ‘‘One essential theme of the ACRS was 

predictable depreciation periods; that was accomplished by freezing in time the property classifications as they were on January 1, 1981. Until further amendment by Congress, there were 

to be no changes.’’ Id. at 404. The applicable date is here Jan. 1, 1986, pursuant to sec. 168(i)(1). 

C.F.R. pt. 31 (1986). Public utilities, like the wireless cellular 

industry, whose rates are often mandated by expenses, are 

routinely required to use uniform systems of accounting 

promulgated by regulatory agencies. See Sprint Corp. & 

Subs. v. Commissioner, 108 T.C. 384, 403 (1997) (citing Pac. 

Enters. & Subs. v. Commissioner, 101 T.C. 1 (1993)). The 

USOA is the uniform system of accounting that the FCC

requires telecommunications companies to apply. See 47 

C.F.R. pt. 32.1 (1986). The USOA classifies telephone communications equipment for accounting and depreciation purposes. 

The USOA classifications were revised in 1988, the year 

after Rev. Proc. 87–56, supra, was issued. 6 See USOA Revision Order, 51 Fed. Reg. 43498 (Dec. 2, 1986). Property’s 

present class life, however, is determined based on the class 

life applicable to such property as of a particular date, in this 

case January 1, 1986. 7 Accordingly, accounts in place as of 

that particular date control, even though the FCC has since 

redefined its accounts. See Sprint Corp. & Subs. v. Commissioner, supra at 404. Nevertheless, we will consider the 1988 

revisions of the USOA classifications to the extent we find 

them helpful in interpreting the classifications in effect on 

January 1, 1986. 

II. Classification of the Equipment

We now turn to classification of the equipment. We must 

determine for the first time how certain wireless cellular 

equipment should be classified. In interpreting other classification issues of first impression, we have applied the plain 

language of the depreciation statutes and USOA classifications. Id. We will therefore apply the plain language to determine the proper classification of equipment category. We 

begin with the classification of the antenna support structures.

(25) BROZ v. COMMISSIONER 33

8 RFB characterized the equipment very broadly on its depreciation schedules. This Court 

bears heavily against taxpayers whose inexactitude is of their own making. See Bogue v. Commissioner, T.C. Memo. 2007–150. 

9Moreover, even if the antenna support structures were properly classified as TOCSC property, they would have a class life of 24 years, rather than seven years as classified by petitioners. Rev. Proc. 87–56, 1987–2 C.B. at 684, states that if property described in the TOCSC 

classes ‘‘is comparable to telephone distribution plant described in Class 48.14 and used for the 

2-way exchange of voice and data communication which is the equivalent of telephone communication, such property is assigned a class life of 24 years under this revenue procedure.’’

A. The Antenna Support Structures

RFB classified a broad range of wireless cellular equipment 

as ‘‘antenna supporting structures’’ under asset class 48.32, 

which it then depreciated over seven years. 8 Respondent contends that the class life should be adjusted to 15 years under 

asset class 48.14. RFB classified the equipment as antenna 

supporting structures under asset class 48.32 because the 

equipment was used to support the antennas and related 

equipment. Asset class 48.32 is in the Telegraph, Ocean 

Cable, and Satellite Communications (TOCSC) activity category. Asset class 48.32 therefore does not apply because the 

TOCSC activity category involves ‘‘domestic and international 

radio-telegraph, wire-telegraph, ocean-cable * * * [or] satellite communications services.’’ Rev. Proc. 87–56, 1987–2 

C.B. at 684. 9

Instead, the equipment is more appropriately categorized 

in the ‘‘Telephone Communications’’ activity category. Petitioners claim the Telephone Communications activity category is too broad to apply to the wireless equipment at 

issue. They argue that comparing the wireless cellular equipment to equipment used by traditional landline telephone 

companies is tantamount to comparing a calculator to an 

abacus. They claim that respondent’s classification ignores 

the physical, technological and practical differences between 

the equipment. Petitioners argue further that wireless cellular equipment has a useful life that is ‘‘demonstrably 

shorter’’ than that of landline equipment. They may nonetheless not depreciate their equipment under a class life simply 

because they believe it better approximates the equipment’s 

useful life. See Grinalds v. Commissioner, T.C. Memo. 1993–

66. Deductions are a matter of legislative grace, and petitioners are entitled to deduct only the amounts prescribed by 

Congress. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 

84 (1992). 

34 137 UNITED STATES TAX COURT REPORTS (25) 

10The antenna support structures’ present class life is determined based on the class life applicable to such property as of Jan. 1, 1986. Here we view the 1988 revisions of the USOA classifications as helpful in interpreting the classifications in effect on Jan. 1, 1986. 

11Petitioners contend that the equipment shelters should not be included within asset class 

48.14 because they are movable structures, and therefore cannot constitute land improvements. 

Petitioners have not provided any evidence, beyond their own self-serving testimony, that the 

equipment shelters were movable by design. 

Moreover, the plain language of Rev. Proc. 87–56, supra, is 

unambiguous as it applies to RFB’s equipment. Assets in the 

Telephone Communications activity category are used to provide commercial and contract telephonic services, which petitioner provided during the years at issue. See id., 1987–2 

C.B. at 684. The relevant asset class for the antenna support 

structures is class 48.14. This class includes ‘‘telephone distribution plant’’ assets, which include ‘‘pole lines, cable, 

aerial wire, underground conduits, and comparable equipment.’’ Id. The antenna support structures fit with the assets 

listed in asset class 48.14, because they provide structural 

support to the antennas and related equipment. 

Furthermore, the antenna support structures are includable in asset class 48.14 by reference to the USOA. Asset class 

48.14 includes ‘‘land improvements, as defined in FCC Part 

31, Account 241.’’ Id. Account 2411, which is the modified 

version of Account 241, includes ‘‘towers * * * not associated 

with building’’, or otherwise freestanding. See 47 C.F.R. pt. 

32.2411 (1988). 10 Respondent’s expert testified that RFB’s 

towers are appropriately classified as freestanding because 

the towers’ association with various buildings was purely 

incidental. RFB installed towers on top of preexisting 

buildings where it was necessary to ensure that the antennas 

would be unobstructed. Regardless of where they were built, 

the towers were freestanding structures designed for the sole 

purpose of providing structural support to the antenna. 11

We hold, accordingly, that the appropriate asset class for 

the antenna support structures is asset class 48.14. Assets in 

asset class 48.14 have a recovery period of 15 years. Rev. 

Proc. 87–56, 1987–2 C.B. at 684. We therefore sustain 

respondent’s determination that petitioners improperly 

depreciated the antenna support structures over a period of 

7 years.

(25) BROZ v. COMMISSIONER 35

12We note that the revenue procedure in effect for taxable years ending on or after Dec. 31, 

2010, now classifies the ‘‘base station controller (or generational equivalent) * * * [and the] base 

transceiver station (or generational equivalent)’’ in asset class 48.121 with a recovery period of 

five years. Rev. Proc. 2011–22, 2011–18 I.R.B. at 738. 

B. The Cell Site Equipment

We now turn to classification of the cell site equipment. 

RFB characterized a wide variety of cell site equipment, 

including the base station and the switch, under the general 

category of ‘‘cell site equipment’’. RFB classified the cell site 

equipment as computer-based telephone central office 

switching equipment (computer-based switching equipment) 

under asset class 48.121 and depreciated the equipment 

using a 5-year life. Respondent concedes that petitioner properly classified the switch as computer-based switching equipment under asset class 48.121. Respondent contends that the 

remaining cell site equipment, including the base station, 

should be classified as telephone central office equipment 

under asset class 48.12. 12 Petitioners argue that the base 

station should be included in asset class 48.121 because it 

has some of the same equipment and can perform some of 

the same functions as the switch. 

Asset classes 48.121 and 48.12 both apply to telephone central office switching equipment. The major distinction 

between the two asset classes is that asset class 48.121 

‘‘includes equipment whose functions are those of a computer 

or peripheral equipment’’. Id. The term ‘‘computer’’ refers to 

a programmable electronically activated device that (1) is 

capable of accepting information, applying prescribed processes to the information, and supplying the results of these 

processes with or without human intervention, and (2) consists of a central processing unit containing extensive storage. See sec. 168(i)(2)(B)(ii). ‘‘Related peripheral equipment’’ 

includes any equipment designed to be placed under the control of the central processing unit of a computer. Sec. 

168(i)(2)(B)(iii). 

Petitioners argue that the remaining cell site equipment 

qualifies as computer equipment because it contains computerized parts. They emphasize that the radio uses the computer processing system of converting transmissions into 

ones and zeroes. Many devices, including cars and CD 

players, use the same computer processing system. We agree 

36 137 UNITED STATES TAX COURT REPORTS (25) 

with respondent that, under petitioners’ analysis, virtually 

every asset in today’s increasingly computerized world would 

be labeled a computer. 

Moreover, even though the remaining equipment included 

some computerized parts, the equipment is not a computer. 

See sec. 168(i)(2)(B). The key component of the base station 

and other cell site equipment was the radio. The primary 

purpose of the radio was to transmit cellular communications 

between the cell phone and the switch. The radio itself did 

not employ computer processing, nor did it contain a central 

processing unit containing extensive storage. We find it 

compelling that even though the base station contained some 

of the same software as the switch, which is classified as a 

computer, the base station did not have the computer system 

or storage capacity to keep billing records. Furthermore, the 

radio technology has functioned for many years without the 

use of computerized parts, suggesting that those parts are 

only ancillary. The presence of some computerized components therefore does not qualify the remaining cell site 

equipment as computer-based. 

Finally, the plain language of Rev. Proc. 87–56, 1987–2 

C.B. at 684, places the remaining cell site equipment in asset 

class 48.12. Asset class 48.12, ‘‘telephone central office equipment’’, includes ‘‘central office switching and related equipment as defined in * * * [USOA] Account No. 221’’ such as 

‘‘radio transmitters and receivers.’’ See 47 C.F.R. pt. 32.2231 

(1988). 

We find that the remaining cell site equipment, including 

the base station, is instead covered by asset class 48.12, 

which has a recovery period of ten years. See id. We therefore sustain respondent’s determination that petitioners 

improperly depreciated the cell site equipment over a period 

of five years. 

C. The Leased Digital Equipment

We now turn to the leased digital equipment. RFB classified 

a wide variety of digital equipment, including the base station, the switch, and the antenna support structures, as computer-based switching equipment under asset class 48.121. 

RFB depreciated all the digital equipment over five years 

under asset class 48.121. The digital equipment comprised 

(25) BROZ v. COMMISSIONER 37

some of the same assets as the analog equipment. We find 

therefore, for the reasons cited previously, that the switch 

has a 5-year class life under asset class 48.121 and the 

remaining cell site equipment has a class life of ten years 

under asset class 48.12. The towers and related land 

improvements have a class life of 15 years under asset class 

48.14. 

Furthermore, depreciation does not begin until the asset is 

placed in service. See sec. 168(d). An asset is placed in 

service when it is ‘‘acquired and put into use.’’ Wilson v. 

Commissioner, T.C. Memo. 2002–61, affd. 71 Fed. Appx. 623 

(9th Cir. 2003). Petitioners therefore may not claim any 

depreciation deductions for the leased digital equipment until 

2000. 

Additional issues are being addressed in a forthcoming 

opinion. 

f