gibson associates inc petitioner v commissioner of internal revenue respondent docket no filed date p is an engineering and heavy construction company that primarily erects or rehabilitates streets bridges airport run- ways and other related real_property collectively real prop- erty p’s rehabilitation services relate mainly to real_property that is substantially dilapidated or damaged from a casualty p also repairs and maintains real_property p reported on its federal_income_tax return for the taxable_year ended date that its receipts are domestic_production_gross_receipts dpgr eligible for a deduction under sec_199 i r c and claimed a dollar_figure deduction under that section r determined in the notice_of_deficiency that none of p’s receipts qualified as dpgr held p’s receipts are dpgr to the extent p erected or substantially renovated real_property and the extent to which p substantially renovated real_property turns on whether p’s activities with respect to each freestanding item of real_property that operated and performed a discrete func- tion in and of itself materially increased the value of the real_property substantially prolonged the useful_life of the real_property and or adapted the real_property to a dif- ferent or new use held further p’s activities materially increased the value of the real_property substantially pro- longed the useful_life of the real_property and or adapted the real_property to a different or new use to the extent that p’s activities were not repairs within the meaning of sec_263 i r c unrelated to p’s primary business held further p’s activities did not materially increase the value of the real_property substantially prolong the useful_life of the real prop- erty and or adapt the real_property to a different or new use to the extent that p’s activities repaired or otherwise main- tained real_property unrelated to p’s primary business verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports charles d lieser for petitioner george e gasper for respondent paris judge petitioner petitioned the court to redeter- mine respondent’s determination of a dollar_figure deficiency in its federal_income_tax for its taxable_year ended date subject year the deficiency results from respondent’s determination that petitioner may not deduct dollar_figure under sec_199 respondent disallowed that deduction after determining that petitioner had no domestic_production dpgr within the meaning of section gross_receipts c petitioner totaled dollar_figure its dpgr reported that respondent now concedes that petitioner had dpgr of dollar_figure and petitioner concedes that it incorrectly reported dollar_figure of the dollar_figure as dpgr we decide whether dollar_figure - dollar_figure - dollar_figure disputed amount is dpgr we hold it is to the extent stated herein remaining dollar_figure the findings_of_fact some facts were stipulated the stipulation of facts and the exhibits submitted therewith are incorporated herein by this reference petitioner is a family-owned_corporation that reports its income and expenses on the basis of a fiscal_year ending on june its principal_place_of_business was in texas when its petition was filed petitioner is an engineering and heavy highway construc- tion company that primarily erects or rehabilitates streets bridges airport runways and other major components or substantial structural parts of real_property primarily infra- structure in texas oklahoma arkansas and kansas peti- unless otherwise indicated section references are to the internal_revenue_code_of_1986 code as amended and rule references are to the tax_court rules_of_practice and procedure dollar amounts are rounded as relevant here and discussed infra the deduction under sec_199 equal sec_3 percent of the lesser_of a taxpayer’s qualified_production_activities_income qpai or the taxpayer’s taxable_income as computed without the deduction under sec_199 and a taxpayer’s qpai equals the taxpayer’s dpgr less the sum of its cost_of_goods_sold allocable to the dpgr plus certain expenses and other items petitioner’s reported deduction of dollar_figure equal sec_3 percent of its re- ported taxable_income as computed without the deduction petitioner reported that its dpgr totaled dollar_figure but now asks the court to find that its dpgr totaled dollar_figure ie dollar_figure less than reported petitioner concedes explicitly that dollar_figure of the dollar_figure is not dpgr and we consider petitioner also to concede that the remaining dollar_figure dollar_figure - dollar_figure is not dpgr as well verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner tioner specializes in structural rehabilitation epoxy injection concrete paving bridge jacking lead abatement and protec- tive coatings petitioner also maintains and repairs infra- structure and other real_property petitioner works through its employees during the subject year petitioner employed approximately individuals these employees were mainly engineers or heavy construc- tion workers and petitioner paid them over dollar_figure million in salary and wages petitioner hired and retained additional employees in subsequent years petitioner worked on construction projects during the subject year petitioner realized dollar_figure of gross_receipts from these projects including dollar_figure of gross_receipts from state or federal projects paid for with federal funds petitioner reported the dollar_figure and the now conceded dollar_figure as dpgr and claimed a dollar_figure deduction under sec_199 respondent determined that petitioner could not deduct the dollar_figure because petitioner had no dpgr petitioner placed its construction projects into three cat- egories the first category casualty projects involved work that petitioner performed on infrastructure that was signifi- cantly damaged by an act of god or by a casualty such as a fire or an overheight or overweight vehicle hitting or trav- eling on a bridge the second category new_construction projects involved work that petitioner performed primarily as a subcontractor on contractors’ multimillion dollar projects involving major rehabilitation of real_property primarily infrastructure the third category rehabilitation projects involved work that petitioner performed as a contractor rehabilitating dilapidated real_property primarily infra- structure petitioner classified its projects into these three categories after reviewing the bid sheets and the other data in its files and after talking to individuals involved with the projects petitioner’s bid sheets were papers that petitioner prepared to calculate and place a bid on a project offered to contractors or subcontractors each bid sheet contained an a project may be paid for with federal funds if the secretary of transportation concludes that the project is a cost-effective means of extending the useful_life of a federal-aid highway see u s c sec_116 see also id sec_101 defining the word secretary for pur- poses of tit as the secretary of transportation petitioner used the percentage_of_completion_method under sec_460 to compute its taxable_income verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports estimate of the amounts and types of costs that petitioner expected to incur in performing the project petitioner its projects as further characterized substantial renovation or repair or maintenance peti- tioner characterized a project as substantial renovation if petitioner concluded that its work on the project substan- tially prolonged the useful_life of real_property materially increased the value of real_property or adapted real prop- erty to a new or different use petitioner categorized its construction projects as repair or maintenance if petitioner concluded that its work on the project was necessary to keep real_property or a component thereof functioning on a short-term basis or included cosmetic or aesthetic work appendixes a b and c list petitioner’s projects other than projects which are the subject of the parties’ conces- sions discussed supra p as categorized by petitioner the appendixes show for each of those remaining projects disputed projects the job number the gen- eral type of work that petitioner performed the final con- tract amount the revenue that petitioner earned for the subject year whether the project was paid for with fed- eral funds and petitioner’s characterization of the project as repair or maintenance substantially prolonging the useful_life of real_property materially increasing the value of real_property and or adapting real_property to a different or new use the specific work that petitioner performed on each project is as follows casualty projects petitioner performed this project for the texas department of transportation txdot petitioner strengthened a bridge at highway and mcarthur boulevard the bridge had been critically damaged by a fire caused by an overturned fuel truck and most of the bridge was closed petitioner strengthened the columns and spans of the bridge using carbon fiber reinforced polymer and structural patching peti- tioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner petitioner performed this project for the north texas toll- way authority ntta petitioner shored up an overhead emergency sign structure on the north texas tollway after the sign was damaged petitioner’s work allowed the ntta to keep the sign in place the sign would have been demolished absent petitioner’s work petitioner concluded that this work substantially prolonged the useful_life of the sign petitioner performed this project for the txdot petitioner worked on a bridge near pampa texas on u s highway the work rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads peti- tioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the oklahoma depart- ment of transportation odot petitioner worked on a bridge in oklahoma county oklahoma on interstate highway over anderson road the work rehabilitated damaged con- crete beams so that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a steel bridge on u s highway and west avenue between tulsa and sand springs oklahoma the work rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads peti- tioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the txdot petitioner worked on a bridge near mckinney texas in farmersville texas on u s highway and main street the work rehabilitated and or replaced damaged concrete beams so verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports that the bridge could reopen to traffic and carry its design loads petitioner also performed some concrete work peti- tioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the txdot petitioner worked on a bridge on farm-to-market over interstate highway in tarrant county texas the work rehabili- tated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads petitioner con- cluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway and u s high- way in corpus christi texas the work rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the ntta petitioner worked on a highway petitioner’s work consisted of pgbt fire damage petitioner concluded that this work was repair or maintenance petitioner performed this project for the odot petitioner worked on a bridge on interstate highway at choctaw road the work rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substantially pro- longed the useful_life of the bridge and materially increased its value petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway at corinth street the work rehabilitated damaged concrete beams so verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substantially pro- longed the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at randall avenue and interstate high- way in oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends petitioner also removed existing lead paint a perceived hazardous mate- rial blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on a bridge at county road and interstate highway in custer county oklahoma petitioner replaced struc- tural steel portions of the bridge to return the bridge to its original load carrying capacity petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at ladd road and interstate highway in mcclain county oklahoma petitioner’s work strength- ened the bridge and returned the bridge to its original load carrying capacity petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at interstate highway and the 23d street ramp in tulsa oklahoma petitioner strengthened the columns of the bridge to resist future impact damage from derailed train cars in a nearby railroad yard petitioner concluded that this work substantially prolonged the useful_life of the bridge verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports petitioner performed this project for the odot petitioner worked on a bridge on state highway and u s highway in tulsa county oklahoma petitioner rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway and sundown bridge in texas petitioner rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substan- tially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway at farm-to- market in texas petitioner rehabilitated damaged con- crete beams to restore the bridge’s load carrying capacity petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge at interstate highway and jim miller road in texas petitioner rehabilitated damaged concrete beams so that the bridge could reopen to traffic and carry its design loads petitioner concluded that this work substan- tially prolonged the useful_life of the bridge new_construction projects petitioner performed this project for the txdot petitioner worked on a bridge at u s highway and the trinity river in texas petitioner raised the bridge to keep it out of the flood plain and reduce the chance that the bridge could close on account of high water or drifting debris petitioner verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge at u s highway sec_80 and sec_175 in texas petitioner’s work consisted of patching the deck of the bridge petitioner concluded that this work substantially prolonged the useful_life of the bridge driving surface petitioner performed this project for the txdot petitioner worked on a bridge on loop in texas petitioner applied an epoxy overlay designed to protect the bridge from the environment petitioner concluded that this work substan- tially prolonged the useful_life of the bridge deck petitioner performed this project for the city of dallas texas petitioner worked on a blast fence at two locations at love field airport in dallas the blast fence included cat- walks and port holes and was built on an old apron to allow for maintenance run-ups and a staging area for hijacked air- craft petitioner concluded this work materially increased the value of the property and adapted the property to a new or different use that petitioner performed this project for the txdot petitioner worked on some bridge joints on loop in travis county texas petitioner rehabilitated pavement and joints peti- tioner concluded that this work substantially prolonged the useful_life of the pavement petitioner performed this project for the txdot petitioner worked on some bridge header joints in williamson county texas petitioner rehabilitated pavement and joints peti- tioner concluded that this work substantially prolonged the useful_life of the pavement verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports petitioner performed this project for the txdot petitioner worked on a bridge on interstate in travis county texas petitioner’s work involved structural steel head joints and bridge deck patches petitioner concluded that this work involving structural steel and head joints substantially pro- longed the useful_life of an hmac overlay petitioner con- cluded that this work involving the bridge deck patches substantially prolonged the useful_life of the bridge deck and the hmac overlay petitioner performed this project for the txdot petitioner worked on a bridge on interstate 35e in texas petitioner rehabilitated concrete pavement so that an asphalt overlay could be installed properly petitioner also rehabilitated joints on the bridge petitioner concluded that this work substantially prolonged the useful_life of the pavement on the bridge petitioner performed this project for the txdot petitioner worked on state highway in texas petitioner added turn lanes and driveways and patched paving petitioner con- cluded that the added lanes and driveways adapted the high- way to a different use petitioner concluded that its pave- ment work substantially prolonged the useful_life of both the concrete pavement and the new hmac overlay petitioner performed this project for the txdot petitioner worked on interstate highway 35e in dallas texas peti- tioner rehabilitated concrete pavement so that an asphalt overlay could be installed properly petitioner also rehabili- tated joints on the bridge petitioner concluded that this work substantially prolonged the useful_life of the pavement on the bridge petitioner performed this project for eastfield college in texas petitioner rehabilitated a failed column at a building verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner at the college petitioner concluded that this work substan- tially increased the useful_life of the building from zero to its original design life petitioner performed this project for the dallas fort worth airport authority petitioner worked on a garage ramp at the airport the ramp had deteriorated and petitioner rebuilt the ramp to allow for traffic to exit the garage petitioner concluded that this work materially increased the value of the garage ramp and adapted the ramp to a new or different use petitioner performed this project for the txdot petitioner worked on u s highway in texas petitioner rehabili- tated concrete pavement so that an asphalt overlay could be installed properly petitioner also rehabilitated joints on the bridge petitioner concluded that this work substantially pro- longed the useful_life of the pavement on the bridge petitioner performed this project for the txdot petitioner worked on interstate highway 35e in texas petitioner rehabilitated concrete pavement so that an asphalt overlay could be installed properly petitioner also rehabilitated joints on the bridge petitioner concluded that this work substantially prolonged the useful_life of the pavement on the bridge petitioner performed this project for the kansas depart- ment of transportation petitioner worked on a bridge on interstate highway over 127th street in wichita kansas petitioner applied an epoxy overlay designed to protect the bridge from the environment petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on a bridge on state highway over dog creek in rogers county oklahoma petitioner installed a new traffic verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports rail that upgraded the crash-worthiness rating from the old rail petitioner replaced the bridge deck to allow for traffic and increase the bridge’s load rating petitioner concluded that this work substantially prolonged the useful_life of the bridge materially increased its value and adapted the bridge to a new or different use petitioner performed this project for the city of dallas texas petitioner worked on the marsalis avenue bridge over the dallas zoo petitioner repainted the deteriorating sub- structure replaced a portion of the deck including with a new pedestrian walkway replaced a number of beams and girders and applied corrosive painting after removing the old paint petitioner concluded that this work substantially pro- longed the useful_life of the bridge petitioner performed this project for the crescent hotel in dallas texas petitioner modified a handrail at the hotel and removed and replaced concrete to comply with the americans with disabilities act of ada u s c secs petitioner concluded that this work adapted the property to a new or different use petitioner performed this project for the txdot petitioner worked on a bridge at u s highway and heritage park- way in texas petitioner rotated the bridge’s bearing pads petitioner concluded that this work was repair or mainte- nance petitioner performed this project for the txdot petitioner worked on a bridge on u s highway in panola county texas petitioner rehabilitated concrete pavement so that an asphalt overlay could be installed properly petitioner also rehabilitated joints on the bridge petitioner concluded that this work substantially prolonged the useful_life of the pave- ment on the bridge verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner petitioner performed this project for the odot petitioner worked on a steel bridge over business interstate highway in beckham county oklahoma the contractor renovated the bridge and petitioner applied the protective coating petitioner also removed existing lead paint a perceived haz- ardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the txdot petitioner worked on a bridge on u s highway in texas petitioner leveled the bearing pads petitioner concluded that this work was repair or maintenance petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway over the brazos river in texas petitioner adjusted the bearings of the bridge to prevent damage and rehabilitated cracks in a structural steel diaphragm to allow the bridge to carry the load for which it was originally designed petitioner also removed existing lead paint a perceived hazardous mate- rial blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge on u s highway over caston creek in le flore county oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends peti- tioner concluded that this work substantially prolonged the useful_life of the bridge verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports petitioner performed this project for the txdot petitioner worked on the pavement on interstate highway in texas petitioner rehabilitated concrete pavement so that an asphalt overlay could be installed properly petitioner also rehabili- tated joints on the bridge petitioner concluded that this work substantially prolonged the useful_life of the pavement on the bridge petitioner performed this project for the txdot petitioner worked on the intersections at state highway petitioner added left and right turn lanes to the intersections to improve traffic flow petitioner concluded that this work materially increased the value of the property and adapted it to a new or different use petitioner performed this project for the city of fort worth texas petitioner worked on the hulen street bridge in fort worth petitioner sealed joints patched the bridge deck and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of dallas texas petitioner worked on the aprons at two terminals at the love field airport in dallas petitioner upgraded the ramps to the aprons for heavier aircraft by removing approximately big_number square yards of approximately 50-year- old 13-inch pavement and replacing it with 16-inch pave- ment petitioner also replaced the existing trench drains with new drains that met applicable federal standards petitioner concluded that this work substantially prolonged the useful_life of the property materially increased its value and adapted the property to a new or different use petitioner performed this project for the txdot petitioner worked on a bridge on u s highway in texas petitioner verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner modified the bearings on the bridge to prevent damage and to maintain the bridge’s load carrying capacity petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of oklahoma city oklahoma petitioner worked on a bridge at walnut avenue in oklahoma city petitioner removed existing lead paint a perceived hazardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the lakes of coppell housing subdivision in coppell texas petitioner worked on a failing retaining wall that spanned the length of the water- ways running through the subdivision the wall had cracked and was falling into the water petitioner replaced the failing wall with a new retaining wall and improved the drainage behind the wall petitioner concluded that this work substan- tially prolonged the useful_life of the subdivision and materi- ally increased its value petitioner performed this project for the txdot petitioner worked on a bridge on u s highway in texas petitioner installed new bridge joints to improve the life of the new overlay petitioner concluded that this work substantially prolonged the useful_life of the property petitioner performed this project for the txdot petitioner worked on a culvert along state highway in texas peti- tioner’s work consisted of structural repairs and water- proofing petitioner concluded that this work was repair or maintenance verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway in texas peti- tioner rehabilitated concrete pavement so that an asphalt overlay could be installed properly petitioner concluded that this work substantially prolonged the useful_life of the pave- ment on the bridge petitioner performed this project for the txdot petitioner worked on the state highway interstate highway 35e u s highway bridge in texas petitioner applied an epoxy overlay to restore the driving surface and protect the concrete deck from future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge misc jobs petitioner does not explain the jobs that it has included in this project we understand petitioner not to argue that the work on this project was other than repair or maintenance rehabilitation projects petitioner performed this project for the dallas forth worth airport authority petitioner worked on pavement at dallas fort worth airport petitioner rehabilitated the pave- ment on the runway taxiway petitioner concluded that this work substantially prolonged the useful_life of the runway taxiway petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway and peachtree road in tarrant county texas petitioner rehabilitated pavement and joints petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on various bridges in garvin lincoln and johnston verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner counties oklahoma near state highways and petitioner sealed joints patched bridge decks and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful lives of the bridges petitioner performed this project for the odot petitioner worked on various bridges in caddo and love counties oklahoma near state highway sec_32 and sec_58 and u s high- way sec_77 and sec_281 petitioner sealed joints patched bridge decks and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful lives of the bridges petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway in texas petitioner rehabilitated pavement and joints so that an asphalt overlay could be installed properly petitioner con- cluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on bridges at u s highway sec_39 and sec_77 in cleveland and mcclain counties oklahoma the bridges were rapidly deteriorating and petitioner replaced the concrete decks and floor beams of the bridges petitioner’s work allowed the load restrictions for truck traffic to be lifted petitioner concluded that this work substantially prolonged the useful lives of the bridges materially increased their values and adapted the bridges to new or different uses petitioner performed this project for the odot petitioner worked on various bridges in oklahoma at state highways and petitioner removed existing lead paint a perceived hazardous material blasted the bridges to remove corrosion and applied protective paint coatings designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridges and materially increased their values verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports petitioner performed this project for the odot petitioner worked on a bridge at state highway and keystone dam in tulsa county oklahoma traffic had fallen through the bridge’s deck and concrete from the pavement had fallen down into the operating mechanisms of the hoist petitioner rehabilitated the concrete pavement of the bridge dam and rehabilitated a guardrail petitioner concluded that this work substantially extended the useful_life of the bridge and mate- rially increased its value petitioner performed this project for the odot petitioner worked on a bridge at state highway over calvary creek in washita county oklahoma petitioner added structural steel to the bridge beams which increased the weight of loads that trucks could carry on the bridge petitioner concluded that this work substantially prolonged the useful_life of the bridge and adapted it to a new or different use petitioner performed this project for the odot petitioner worked on a bridge at state highway over horse deer creeks in custer county oklahoma petitioner added struc- tural steel to the bridge beams which increased the weight of loads that trucks could carry on the bridge petitioner con- cluded that this work substantially prolonged the useful_life of the bridge and adapted it to a new or different use petitioner performed this project for the odot petitioner worked on four bridges on county roads in oklahoma peti- tioner sealed joints patched the decks of the bridges and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful lives of the bridges petitioner performed this project for the odot petitioner worked on seven bridges in oklahoma petitioner sealed joints patched the decks of the bridges and retrofitted beam verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner ends petitioner concluded that this work substantially pro- longed the useful lives of the bridges petitioner performed this project for the town of addison texas petitioner worked on pavement on a bridge on belt line road in addison petitioner rehabilitated pavement and joints so that an asphalt overlay could be installed properly petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on a bridge at state highway and keystone dam in tulsa county oklahoma petitioner rehabilitated concrete pavement across the dam and applied a sealant petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at state highway and gaines creek in oklahoma petitioner rehabilitated the structural steel removed old corroded steel and applied a protective paint coating designed to prevent future corrosion petitioner con- cluded that this work substantially prolonged the useful_life of the bridge and adapted it to a new or different use petitioner performed this project for the odot petitioner worked on a bridge at state highway over state highway and creek in pontotoc county oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on various steel bridges at interstate highway pinciteth and 19th streets in oklahoma county oklahoma peti- tioner sealed joints patched the decks of the bridges and retrofitted beam ends petitioner also removed existing lead verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports paint a perceived hazardous material blasted the bridges to remove corrosion and applied protective paint coatings designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful lives of the bridges and materially increased their value petitioner performed this project for the ntta petitioner cleaned and sealed pavement joints to prevent the intrusion of water petitioner concluded that this work substantially prolonged the useful_life of the existing pavement petitioner performed this project for the txdot petitioner rehabilitated concrete traffic barrier walls petitioner con- cluded that this work substantially prolonged the useful_life of the traffic barrier walls petitioner performed this project for the txdot petitioner worked on a bridge at state highway and the brazos river in texas petitioner repositioned the rocker bearing assemblies and installed new stiffeners so that the bridge would not self-destruct a stiffener sometimes called a gusset plate is an accessory to a steel structure that restrains a distortion of some or all of the steel petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge on or at interstate highway in austin travis county texas the armor joints on the bridge were coming loose and the steel was sticking up in the traffic petitioner rehabilitated the joints and the steel the bridge would have been closed without this work petitioner con- cluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on a bridge in oklahoma petitioner rehabilitated verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner pavement and joints so that an asphalt overlay could be installed properly petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge at u s highway and valley creek in abilene texas petitioner replaced the bearing pads on the bridge petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge at u s highway in lufkin texas petitioner rehabilitated the bridge joints petitioner con- cluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the ntta petitioner worked on pavement petitioner routed and sealed cracks in the pavement to prevent moisture intrusion petitioner con- cluded that this work substantially prolonged the useful_life of the pavement petitioner performed this project for the txdot petitioner worked on a bridge on u s highway in grayson county texas work was also performed on parts of the railing and the deck petitioner cleaned and sealed joints patched the bridge deck and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on a bridge at interstate highway sec_40 and sec_44 in oklahoma county oklahoma petitioner removed existing lead paint a perceived hazardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner also rehabilitated part of the deck of the bridge petitioner con- verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports cluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at interstate highway sec_35 and sec_44 in comanche and garvin counties oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends petitioner also removed existing lead paint a perceived haz- ardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge in beckham county oklahoma peti- tioner sealed joints patched the bridge deck and retrofitted beam ends petitioner also removed existing lead paint a perceived hazardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the city of forth worth texas petitioner worked on a bridge on riverside drive in fort worth petitioner removed existing lead paint a perceived hazardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at interstate highway and the canadian river in oklahoma the expansion joints had failed allowing the bridge deck to spall and deteriorate and allowing salt and or water to get to the slab substructure in verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner the construction industry the word spall as a noun refers to a surface defect and as a verb to the breaking up of a material to create a surface defect petitioner rehabilitated the deck and the joints petitioner concluded that this work substantially extended the useful_life of the bridge petitioner performed this project for the txdot petitioner worked on a bridge at loop and gaines creek in texas the bearing pads had failed and petitioner raised the bridge and installed new and updated pads to keep the bridge from destroying itself petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the ntta petitioner changed the bearing pads on the mountain creek lake bridge to prevent damage at the beam bearing seat interface petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of tulsa oklahoma petitioner worked on the tulsa oklahoma civic center petitioner rehabilitated and waterproofed the deck of the civic center petitioner concluded that this work substan- tially prolonged the useful_life of the civic center petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway petitioner removed and replaced failing expansion joints that were allowing the bridge deck to deteriorate and letting moisture into the substructure petitioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the txdot petitioner worked on a bridge at u s highway and choctaw creek in texas petitioner sealed joints patched the bridge deck and retrofitted beam ends petitioner also removed existing verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports lead paint a perceived hazardous material blasted the bridge to remove corrosion and applied a protective paint coating designed to prevent future corrosion petitioner con- cluded that this work substantially prolonged the useful_life of the bridge and materially increased its value petitioner performed this project for the odot petitioner worked on a bridge at state highway over the washita river in caddo county oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends peti- tioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of oklahoma city oklahoma petitioner worked on the oklahoma city grandstand the expansion joints and their supports were failing in various sections of the grandstand and petitioner rehabilitated those joints without the rehabilitation the grandstand would have been unusable and continuing to self- destruct petitioner concluded that this work substantially extended the useful_life of the structure petitioner performed this project for the txdot petitioner worked on a bridge at state highway sec_82 and sec_87 in texas petitioner strengthened and retrofitted the structural compo- nents to help the bridge regain and maintain its design loads carrying capacity petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of lawton oklahoma petitioner worked on a bridge at gore boulevard and cashe road in oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends peti- tioner concluded that this work substantially prolonged the useful_life of the bridge and materially increased its value verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner petitioner performed this project for the odot petitioner worked on a bridge at u s highway sec_62 and sec_74 in oklahoma and logan counties oklahoma petitioner sealed joints patched the bridge deck and retrofitted beam ends peti- tioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of dallas texas petitioner reconfigured the streetscapes on field st paul and harwood streets to provide better pedestrian movement and safety petitioner concluded that this work materially increased the value of the property and adapted the property to a new or different use petitioner performed this project for the city of oklahoma city oklahoma petitioner worked on a bridge at cimarron road over interstate highway in oklahoma city peti- tioner sealed joints patched the bridge deck and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the city of oklahoma city oklahoma petitioner worked on the rockwell avenue bridge in oklahoma city petitioner sealed joints patched the bridge deck and retrofitted beam ends petitioner con- cluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for the odot petitioner worked on the rockwell avenue bridge in oklahoma peti- tioner sealed joints patched the bridge deck and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful_life of the bridge verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports petitioner performed this project for the ntta petitioner worked on the entrance to a building in plano texas peti- tioner modified the entrance to comply with the ada peti- tioner concluded that this work substantially prolonged the useful_life of the property materially increased its value and adapted the property to a new or different use petitioner performed this project for the ntta petitioner rehabilitated concrete pavement and joints on a bridge so that an asphalt overlay could be installed properly peti- tioner concluded that this work substantially prolonged the useful_life of the bridge petitioner performed this project for cps energy petitioner rehabilitated an old trolley bridge on mission road increasing the load carrying capacity of the bridge to allow for trucks petitioner concluded that this work substantially prolonged the useful_life of the bridge materially increased its value and adapted the bridge to a new or different use petitioner performed this project for the txdot petitioner worked on a bridge on interstate highway in texas peti- tioner sealed joints patched the bridge deck and retrofitted beam ends petitioner concluded that this work substantially prolonged the useful_life of the bridge i background opinion we decide whether the disputed amount is dpgr the par- ties agree that the disputed amount is dpgr to the extent that petitioner performed work on projects that erected or substantially renovated real_property in addition the par- ties agree that petitioner’s work substantially renovated real_property to the extent that the work renovated a major component or substantial structural part of real_property and the renovations materially increased the value of the real_property substantially prolonged the useful_life of the verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner real_property and or adapted the real_property to a different or new use further the parties do not dispute that peti- tioner’s work met the first prong of this two-part substantial renovation test our decision therefore turns on whether petitioner’s work erected property or to the extent it did not met the second prong of the test petitioner argues that it erected or substantially ren- ovated real_property and therefore the disputed amount is dpgr respondent argues that petitioner’s work falls outside of the meanings of those terms and therefore the disputed amount is not dpgr we agree with petitioner ii burden_of_proof respondent determined that none of the disputed amount is dpgr and respondent’s determination is presumed correct see 290_us_111 see also 319_us_590 stating that deductions are a matter of legislative grace for which taxpayers must prove their entitlement cf 293_us_144 stating that tax provisions should not be narrowly construed where as here they are liberalizations of the law in the taxpayer’s favor begotten from motives of public policy a tax- payer generally must prove the commissioner’s determina- tion wrong in order to prevail see rule a sec_7491 however sometimes places the burden_of_proof upon the commissioner the record allows us to decide this case without regard to which party bears the burden_of_proof we proceed to do so we need not and do not decide which party bears the burden_of_proof respondent concedes in his opening brief that petitioner’s work on the bridges met the first prong but advances no argument as to petitioner’s work on the other types of property each of those other types of property is real_property within the meaning of sec_199 because it is either a building or other_property that is and ordinarily will remain affixed to real_property for an indefinite period see sec_1_199-3 income_tax regs see also sec_1_263a-8 income_tax regs furthermore we find in the record that petitioner’s work on these other types of property renovated a major component or a substantial structural part of that property we conclude that all of the properties in dispute meet the first prong of this two-part test hereinafter we use the term disputed projects to refer to the projects discussed supra p less the of those projects that petitioner characterizes as repair or maintenance verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports iii sec_199 a applicable text our substantive analysis begins with the relevant text of sec_199 we set forth that text in appendix d sec_199 allows a corporate taxpayer such as petitioner to deduct a percentage equal to percent for the subject year of the lesser_of its qualified_production_activities_income or its taxable_income as computed without regard to the deduction under sec_199 sec_199 limits that deduction to percent of the wages that the taxpayer pays during the year sec_199 defines the term qualified_production_activities_income as the taxpayer’s dpgr less the sum of its cost_of_goods_sold allocable to the dpgr plus cer- tain expenses and other items sec_199 pro- vides that dpgr includes a taxpayer’s gross_receipts from the construction of real_property performed in the united_states if the taxpayer is engaged in the active_conduct of a construc- tion business and the gross_receipts are derived in the ordi- nary course of that business sec_199 does not define the phrase construction of real_property as its appears in sec_199 and it is the meaning of that phrase that is the focus of our analysis the parties do not dispute that petitioner is entitled to a deduction under sec_199 to the extent that petitioner’s work on the disputed projects falls within the meaning of that phrase nor do the parties dispute that petitioner’s work will fall within the meaning of that phrase if the work erected or substantially renovated real_property within the meaning of sec_1_199-3 income_tax regs b legislative_history sec_199 was added to the code by the american_jobs_creation_act_of_2004 ajca publaw_108_357 118_stat_1424 to give domestic manufacturers a tax deduction for certain domestic_production activities the conferees noted that then-present law did not reduce a corporate tax- payer’s income_tax for income from domestic activities and stated that sec_199 would provide such a reduction in certain cases see h conf rept pincite the conferees stated that construction activities performed verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner in the united_states was one of those cases that activities that are directly related to the erection or substantial ren- ovation of residential and commercial buildings and infra- structure were construction activities and that structural improvements but not mere cosmetic changes such as painting were substantial renovation id pincite n the name of the ajca and the statute’s wage limitation on the amount of the deduction under sec_199 indicate that congress intended that sec_199 create jobs in the united_states and otherwise strengthen the u s economy iv guidance from the commissioner and from the sec- retary a notice_2005_14 on date the commissioner released notice_2005_14 2005_1_cb_498 to provide interim guidance on sec_199 the notice stated that the secretary was cur- rently developing regulations under sec_199 and that tax- payers could rely on the interim guidance until the regula- tions were issued id sec_1 c b pincite as relevant here notice_2005_14 sec_4 a and b c b pincite stated that the term ‘construction’ means the construction or erection of real_property and that activities constituting construction include activities performed in connec- tion with a project to erect or substantially renovate real_property but do not include tangential services such as hauling trash and debris and deliv- ering materials even if the tangential services are essential for construc- tion however if the taxpayer performing construction also in connection with the construction_project provides tangential services such as deliv- ering materials to the construction site and removing its construction debris the gross_receipts derived from the tangential services are dpgr improving land for example grading and landscaping and painting are activities constituting construction only if these activities are performed in connection with other activities whether or not by the same taxpayer that constitute the erection or substantial renovation of real_property notice_2005_14 sec_4 d c b pincite stated that the term ‘substantial renovation’ means the renovation of a major component or substantial structural part of real_property that materially increases the value of the property substantially prolongs the useful_life of the property or adapts the property to a new or different use notice verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports sec_3 d c b pincite explained as to that meaning the service and treasury_department believe that the standard to be applied in determining whether there has been a substantial renovation of real_property is the standard applied under sec_263 to determine whether a taxpayer’s activities result in permanent improvements or betterments of property such that the cost of the activities must be capitalized and that the definition of the term substantial renovation as set forth in the notice is consistent with the rules under sec_263 b proposed_regulations on date the secretary published proposed_regulations under sec_199 see sec_1_199-0 through proposed income_tax regs fed reg date the proposed_regulations stated that the final regulations when published would apply to taxable years beginning after date see sec_1_199-8 pro- posed income_tax regs fed reg date the proposed_regulations stated that taxpayers could rely on the proposed_regulations and or the interim guidance set forth in notice_2005_14 supra until the final regulations were published in the federal_register see id the definition of the word construction in the proposed_regulations was similar to its definition in notice_2005_14 supra sec_1_199-3 and proposed income_tax regs fed reg date stated that the term construction means the construction or erection of real_property and activities constituting construction include activities performed in connec- tion with a project to erect or substantially renovate real_property but do not include tangential services such as hauling trash and debris and deliv- ering materials even if the tangential services are essential for construc- tion however if the taxpayer performing construction also in connection with the construction_project provides tangential services such as deliv- ering materials to the construction site and removing its construction debris the gross_receipts derived from the tangential services are dpgr improvements to land that are not capitalized to the land for example landscaping and painting are activities constituting construction only if these activities are performed in connection with other activities whether or not by the same taxpayer that constitute the erection or substantial renovation of real_property the proposed_regulations also followed the definition of the term substantial renovation set forth in notice_2005_14 verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner supra sec_1_199-3 proposed income_tax regs fed reg date stated that the term substantial renovation means the renovation of a major component or substantial structural part of real_property that materially increases the value of the property substan- tially prolongs the useful_life of the property or adapts the property to a new or different use while this definition adopted some of the grounds for capitalization under sec_263 and the regulations thereunder see sec_1_263_a_-1 income_tax regs stating that an expense is generally a cap- ital expenditure if the expense adds to the value or substan- tially prolongs the useful_life of property owned by the tax- payer or adapts the property to a new or different use the proposed_regulations did not explicitly adopt all of those grounds the proposed_regulations for example did not explicitly adopt the standard of sec_1_263_a_-2 income_tax regs that the cost of acquisition construction or erec- tion of buildings machinery and equipment furniture and fixtures and similar_property having a useful_life substan- tially beyond the taxable_year is a capital_expenditure see also 503_us_79 holding that an expenditure that produces a signifi- cant future benefit is a capital_expenditure under sec_263 c final regulations on date the secretary published final regulations under sec_199 see sec_1_199-0 through income_tax regs fed reg date the final regu- lations are applicable to taxable years beginning on or after date see sec_1_199-8 income_tax regs the final regulations also stated however that a taxpayer could rely on the final regulations for taxable years beginning before date provided that the taxpayer followed all of those final regulations see id the final regulations stated that taxpayers who do not rely on the final regulations for taxable years beginning before date may rely on the proposed_regulations and or the interim guidance set forth in notice_2005_14 supra see id the final regulations stated that the term construction means activities and services relating to the construction or verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports erection of real_property sec_1_199-3 income_tax regs the final regulations also stated activities constituting construction are activities performed in connection with a project to erect or substantially renovate real_property activities constituting construction do not include tangential serv- ices such as hauling trash and debris and delivering materials even if the tangential services are essential for construction however if the taxpayer performing construction also in connection with the construction_project provides tangential services such as delivering materials to the construc- tion site and removing its construction debris then the gross_receipts derived from the tangential services are dpgr improvements to land that are not capitalizable to the land for example landscaping and painting are activities constituting construction only if these activities are performed in connection with other activities whether or not by the same taxpayer that constitute the erection or substantial renovation of real_property sec_1_199-3 income_tax regs the final regulations further stated as did notice_2005_14 supra and the proposed_regulations that the term substantial renovation means the renovation of a major component or substantial structural part of real_property that materially increases the value of the property substan- tially prolongs the useful_life of the property or adapts the property to a new or different use sec_1_199-3 income_tax regs the final regulations like the proposed_regulations did not explicitly adopt other grounds for capital- ization under sec_263 and the regulations thereunder v expert testimony a overview each party relies on expert testimony to support its or his view that petitioner’s work is or is not the erection or substantial renovation of real_property petitioner called two individuals to testify as experts on engineering in the context of petitioner’s business respondent called one individual to testify as an expert on construction engineering and construction management the court recognized each of the three individuals as an expert the court also received into evidence each individual’s written report as supplemented in the cases of the individuals called by petitioner see rule g stating that an expert witness shall submit to the verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner court a written report that serves as his or her direct testi- mony b petitioner’s expert sec_1 mr gibson william e gibson mr gibson was one of petitioner’s experts mr gibson is a licensed professional engineer and he earned a bachelor of science degree in civil engineering in and a master of business administration degree in management in he has worked with highway and bridge construction for over years he has worked with structural rehabilitation for over years and he works cur- rently for petitioner as its chief_executive_officer mr gib- son is an active member of many associations societies of engineers and he or petitioner has received numerous awards for his or its work in the field of construction he has advised federal and state highway departments on the construction of bridges and of other infrastructure mr gibson is familiar with the specific work that peti- tioner performed on each of its projects he reinforced that familiarity by examining petitioner’s documents relating to the projects and by visiting a substantial number of the jobsites he classified the projects into the following groups those projects which extended the useful_life of real prop- erty by more than years those projects which increased the value of real_property by more than percent of the component being worked upon those projects that adapted the property or component to a new or different use and those projects that were part of new_construction he characterized the remaining projects which did not fall into one of these four categories as routine maintenance or repairs mr gibson concluded from his analysis that petitioner’s work on over percent of the disputed projects was substantial renovation within the meaning of the final regu- lations and their predecessors his report as supplemented supported his conclusion with vast amounts of data and with many diagrams charts and pictures depicting the specific construction work petitioner performed his report as mr gibson also has a significant financial interest in petitioner verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports supplemented further supported his conclusion with detailed bid sheets for the projects and with articles and treatises relating to pavement preservation the extension of the use- ful life of roads and bridges the improvement of the condi- tion of bridges and bridge management mr smith douglas l smith mr smith was petitioner’s other expert mr smith is a licensed professional engineer and he earned a bachelor of science degree in civil engineering in and a master of science degree in civil engineer- ing in he has worked with building or infrastructure construction for over years and he is an active member of various societies of engineers he currently works for a consulting engineering architectural and materials science firm that is unrelated to petitioner he and the firm spe- cialize in investigating and repairing infrastructure that fails to meet performance expectations because of deterioration collapse or the like the firm’s main clients are state high- way departments and the federal government mr smith reviewed all of the disputed projects including in depth which represented most of petitioner’s gross_receipts for the subject year and he visited of the jobsites he scrutinized the projects and bid sheets and he spoke to persons who worked on the projects he concluded that petitioner’s work on the disputed projects often was required by deterioration caused by the owner’s failure to properly maintain the real_property and that rehabilitation of the real_property as opposed to repair was essential to the survival of the real_property he concluded that the bridge joints that petitioner rehabilitated had deteriorated before petitioner’s work that the deteriorated joints were harming other parts of the bridges and that petitioner had to tailor its work to protect the structure of the bridges prospectively he concluded that some of petitioner’s work eg replacement of bearing pads was necessitated by design defects in the originally installed parts and was not routine maintenance he concluded that petitioner’s work on pave- ment in job no and in another job not in dispute substantially prolonged the useful_life of the pavement and increased its value verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner c respondent’s expert respondent’s expert was jeff ronspies mr ronspies mr ronspies received a bachelor of science degree in civil engineering in and a juris doctorate in he worked as an engineer from through and he worked as an attorney for a year and a half during and from date to date he has worked as a general engi- neer for the internal_revenue_service primarily gather ing facts related to fixed asset and intangible asset audits and draft ing reports used in administrative appeal of audits and rebuttals to taxpayer protests of proposed tax adjust- ments mr ronspies is not a licensed engineer he is not a current member of any engineering society and he has never published a paper on engineering nor has mr ronspies ever worked as an engineer on a construction_project involving bridges roads or other infrastructure other than in his role as an overseer of a firm’s basic painting operations mr ronspies reviewed the bid calculations and the descriptions of all of petitioner’s projects and he visited of the jobsites all within the dallas fort worth metropolitan area he concluded that of petitioner’ sec_136 projects quali- fied as substantial renovation of real_property within the meaning of the final regulations and these projects became and are the subject of respondent’s concession mr ronspies concluded that the remaining projects ie the dis- puted projects plus the projects petitioner conceded were either repair or maintenance or accounting anomalies the accounting anomalies mr ronspies stated were projects with no receipts or job costs for the subject year mr ronspies explained that he characterized projects as repair or maintenance because petitioner worked on only part of a structure leaving the rest of the structure to deteriorate at the same rate as before mr ronspies opined that the useful_life of a structure as a whole does not change if work is per- formed on only part of the structure d general rules applicable to expert testimony expert testimony is admissible where it assists the court to understand the evidence or to determine a fact in issue see fed r evid see also 108_tc_147 the testimony of an expert does not verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports assist the court when the testimony merely expresses a legal conclusion see 109_tc_133 affd 165_f3d_822 11th cir determining whether expert testimony is helpful to the court is a matter within the court’s sound discretion see 92_tc_101 we have broad discretion to evaluate the cogency of an expert’s analysis sometimes an expert will help us decide a case see eg 106_tc_274 other times he or she will not see eg estate of scanlan v commissioner tcmemo_1996_331 affd without published opinion 116_f3d_1476 5th cir we weigh an expert’s testimony in the light of his or her qualifications and with due regard to all other credible_evidence in the record we may embrace or reject an expert’s opinion in toto or we may pick and choose the portions of the opinion we choose to adopt see 304_us_282 538_f2d_927 2d cir affg tcmemo_1974_285 97_tc_496 86_tc_547 we are not bound by an expert’s opinion and will reject an expert’s opinion to the extent that it is contrary to the judg- ment we form on the basis of our understanding of the record as a whole see 813_f2d_837 7th cir affg 85_tc_56 silverman v commissioner supra pincite it s of iowa inc v commissioner supra pincite 84_tc_722 vi standards of substantial renovation a applicable guidance sec_199 states that dpgr is derived from the construction of real_property performed in the united_states but sec_199 does not define the word construc- tion petitioner relies in part upon the final regulations to assert that its work on the disputed projects qualifies as construction because those projects involved erecting or substantially renovating real_property petitioner also relies upon the final regulations to assert that some of its work substantially renovated real_property because petitioner ren- verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner ovated a major component or substantial structural part of real_property and that work materially increased the value of the property substantially prolonged the useful_life of the property or adapted the property to a new or different use by their terms the final regulations are not necessarily applicable to this case because the subject year began before date the final regulations however allow a tax- payer such as petitioner to rely upon those regulations for taxable years beginning before date see sec_1 i income_tax regs petitioner relies on portions of the final regulations to support its position petitioner’s reliance on portions of the final regulations means those regulations are applicable to this case in their entirety see id peti- tioner’s reliance on portions of the final regulations also means that the other above-discussed guidance from the sec- retary and from the commissioner is not directly applicable to this case b overview we proceed to decide the meaning of the phrases materi- ally increases the value of the property substantially pro- longs the useful_life of the property and adapts the prop- erty to a new or different use as used in sec_1 m income_tax regs these phrases had their genesis in the capitalization_rules set forth in sec_263 and the regulations thereunder see notice_2005_14 sec_3 d see also sec_1_263_a_-1 income_tax regs the increased value prolonged useful_life and adapted use standards con- tained in those phrases are measured by reference to the real_property here primarily infrastructure inclusive of all of its components and parts see sec_1_199-3 and income_tax regs see also sec_1_199-3 income sec_1_199-3 income_tax regs defines the terms real_property and infrastructure as follows definition of real_property -the term real_property means buildings including items that are structural_components of such buildings inherently permanent structures as defined in sec_1_263a-8 other than machinery as defined in sec_1_263a-8 including items that are structural_components of such inherently permanent structures inherently permanent land im- provements oil_and_gas wells and infrastructure as defined in paragraph m of this section for purposes of this paragraph m structural_components of buildings and inherently permanent structures include property such as walls partitions doors wiring plumbing central air conditioning and heating systems pipes and ducts elevators and escalators and other simi- lar property continued verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports tax regs using the words the property in reference to the words real_property ingram the words real_property in turn are best understood to refer to each freestanding item of real_property that operates and performs a discrete function in and of itself cf 300_f3d_1023 9th cir holding that aluminum reduction cells were sufficiently free- standing to constitute units of property separate and apart from the interconnected cell lines in aluminum smelting facility for purposes of characterizing the expense of replacing the cell linings as a repair affg vanalco inc v commissioner tcmemo_1999_265 indus inc v commissioner tcmemo_2000_323 holding that tugboat engines were not treated separately from tugboats in determining whether engine repair costs were capital expenditures sec_1_263a-10 income_tax regs stating that a unit of real_property includes any components of real_property owned by the taxpayer that are functionally interdependent thus the relevant property that we analyze to measure whether a standard of substantial renovation is met is generally each building bridge or other permanent structure on which petitioner worked as the expert testi- mony in this case shows each of the bridges and the other real_property at issue normally is constructed with a number of major interrelated components any one of which is critical to the property’s overall functionality and the separate components of the property generally do not perform a dis- crete function in the setting of the property as a whole that would allow the component to operate and be used by itself to the contrary the placing in service of one component ie the readiness and availability of that component for its spe- cific use is generally dependent on the placing in service of the other components of the bridge or the other real prop- erty c repairs the capitalization_rules of sec_263 and the regula- tions thereunder do not treat an expense to repair property as a capital_expenditure such an expense is not a capital definition of infrastructure -the term infrastructure includes roads power lines water systems railroad spurs communications facilities sewers sidewalks cable and wiring the term also includes inherently permanent oil_and_gas platforms verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner expenditure because it fails to increase the value or prolong the useful_life of the property or adapt the property to a dif- ferent or new use see 39_tc_333 instead the repair generally keeps the property in its ordinarily efficient oper- ating condition over the useful_life for which it was acquired see ill merchs trust co v commissioner 4_bta_103 see also sec_1_162-4 income_tax regs stating that incidental repairs do not materially add to the value of the property or appreciably prolong its life but keep it in an ordinarily efficient operating condition and that repairs in the nature of replacements to the extent that they arrest deterioration and appreciably prolong the life of the property shall be capitalized whether an expense is a repair is a factual determination that turns on a finding that the work did or did not prolong the life of the property increase its value or make it adaptable to a different use see r r hensler inc v commissione73_tc_168 sometimes an expense that would otherwise be character- ized as a repair may be characterized as a capital expendi- ture if the expense is part of the property’s rehabilitation modernization and improvement see 400_f2d_686 10th cir 242_f2d_616 5th cir affg 24_tc_563 such may be so even if the property was not com- pletely out of service or in total disrepair see 108_tc_265 holding that the costs of removing asbestos-containing mate- rials must be capitalized because they were part of a general plan of rehabilitation and renovation that improved the building see also bank of houston v commissioner tcmemo_1960_110 in addition the secretary has proposed a regulation under which an expense is a capital_expenditure rather than a repair where the property has deteriorated to in 39_tc_333 the taxpayer claimed deductions for the cleaning and lining of cement pipe which restored the original water- carrying capacity of the pipes the court held that the expenses were repairs because the tax- payer continued to use the property in its normal course of business and the useful_life of the water main was not increased nor was its strength or capacity enhanced id the court noted that a repair returns property to the state it was before the condition necessitating the expendi- ture arose and does not make the property more valuable more useful or longer lived id the court noted that a capital_expenditure under sec_263 generally results in a longer lasting increase in the longevity utility or worth of the property id see also 108_tc_265 verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports a state of disrepair and is no longer functional for its intended use and the expense returns the property to its former ordinarily efficient operating condition see sec_1_263_a_-3 proposed income_tax regs fed reg date d substantial renovation standard sec_1 materially increases the value a taxpayer’s receipts may be dpgr if the receipts are attributable to renovations that materially increase the value of real_property see sec_1_199-3 income_tax regs respondent asserts that a material increase in the value of real_property in the context of public works projects requires that the functional value of the property increase on account of the project we agree see plainfield-union water co v commissioner supra pincite each of petitioner’s projects may have materially increased the value of the underlying real_property only to the extent that the project led to a more permanent increment in the longevity utility or worth of the property such a permanent increment may have occurred for example if the project rehabilitated a critical component of the property thus making the rehabilitation tantamount to replacing the property as a whole an increase in value following a casualty is measured by comparing the value of the real_property after the project with the value of the real_property before the casualty see r r hensler inc v commissioner supra pincite an increase in value in other cases is measured by comparing the value of the real_property after the project with the value of the real_property before the project see plainfield-union water co v commissioner supra pincite in all cases any increase in value must be material to qualify the receipts as dpgr substantially prolongs the useful_life a project may substantially prolong the useful_life of prop- erty if the project rehabilitates a critical and functional component of the property and gives the property a new life expectancy see 300_f3d_1023 9th cir the replacement of a component that is so integral to the overall functioning of property effectively con- verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner fers a new lifespan on the property equivalent to the life of the component id pincite the useful_life of property may be substantially prolonged where the useful_life of the prop- erty as a whole was increased or the replacement of a compo- nent effectively increased the useful_life of the property an increase in useful_life following a casualty is measured by comparing the useful_life of the real_property after the project with the remaining useful_life of the real_property before the casualty see r r hensler inc v commissioner supra pincite an increase in useful_life in other cases is measured by comparing the useful_life of the real_property after the project with the remaining useful_life of the real_property before the project see plainfield-union water co v commissioner t c pincite ill merchs trust co v commissioner b t a pincite in all cases any prolonging of useful_life must be substantial to qualify the receipts as dpgr adapts the property to a new or different use property is adapted to a new or different use if the use of the property after the project is not consistent with the tax- payer’s intended use of the property before the project as the parties acknowledge and we agree such an adaption often corresponds to a material increase in value or to a substantial prolonging of useful_life if a project qualifies as a substantial renovation under either one of the other two standards it is not necessary to determine whether the prop- erty also is adapted for a new or different use job no is the only project that petitioner characterized as adapting property to a new or different use without substantially prolonging the useful_life of the prop- erty or materially increasing its value there petitioner was paid approximately dollar_figure to modify a handrail and to remove and to replace concrete to comply with the ada peti- tioner concluded that this work adapted the property to a new or different use we agree petitioner’s modification of the handrail allowed access to the property by those persons to whom the ada applied and the handrail could not have been so used without the modifications we sustain peti- tioner’s conclusion that this project qualified under sec_199 without further specific discussion of this project verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports vii characterization of remaining projects a overview we now consider whether petitioner’s work on the remaining disputed projects was the erection or substantial renovation of real_property we do so on a project by project basis we are aided by the testimony of messrs gibson and smith both of whom are licensed well-credentialed and knowledgeable longtime prominent professional engineers in the fields of highway and bridge construction and structural rehabilitation we heard them and perceived them to be more knowledgeable and reliable than mr ronspies on the matter at hand and we find the testimony of messrs gibson and smith to be sincere and most persuasive mr ronspies on the other hand lacks any practical experience in road and bridge construction and we decline to accept his testimony on that subject_to the extent that it conflicts with the testimony of messrs gibson and smith we note as to mr ronspies that he ultimately agreed that of petitioner’s bridge projects that he visited qualified under sec_199 and acknowledged that his opinion as to the qualification of petitioner’s remaining projects might have changed had he visited them as well petitioner asserts that its work on each disputed project erected real_property or substantially renovated real prop- erty we agree petitioner erected real_property in job nos a blast fence additional lanes and drive- ways a ramp a traffic rail and a bridge deck additional turn lanes and a retaining wall in the other projects petitioner ren- ovated major components or substantial structural parts of infrastructure addressed design errors or construction flaws by restoring infrastructure to perform efficiently as intended allowed infrastructure to be put back in service after damage or severe deterioration returned a major component from a deteriorated state either from age expo- sure or casualty_loss to its former operational efficiency of course we recognize that the interests of petitioner and mr gibson overlap in that he is petitioner’s chief_executive_officer and has a significant financial interest in this matter we have taken those considerations into account in our evaluation of his testimony and have con- cluded that his testimony was sincere and credible mr ronspies now agrees that job no qualifies under sec_199 verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner abated environmental hazards eg by removing or encap- sulating lead paint and or brought infrastructure into compliance with laws such as the ada petitioner’s work on these other projects effected the renovation of a major compo- nent or substantial structural part of real_property and we conclude from our description of each project as set forth in our findings_of_fact and in appendixes a b and c and our consideration of the expert testimony of messrs gibson and smith that the work materially increased the value of the real_property and or substantially prolonged the useful_life of the real_property b conclusions as to specific project sec_1 casualty projects the casualty projects in dispute involved petitioner’s work on damaged infrastructure mainly bridges that either were completely inoperative eg not open to traffic or not fully operative petitioner restored the integrity of the infra- structure through substantial structural rehabilitation that allowed the infrastructure to function as intended for many years thereafter much of the infrastructure was of little to no use without petitioner’s work petitioner’s final contract amount for each project ranged from dollar_figure to dollar_figure we conclude from the record at hand that the functionality and dollar values of the real_property underlying most of the casualty projects increased substantially on account of peti- tioner’s work we also conclude that for those projects and for each of the other_casualty projects for which petitioner does not assert a material increase in value specifically job nos and that petitioner’s work substantially prolonged the useful_life of the infrastructure new_construction and rehabilitation projects in dispute the remaining projects ie the remaining projects in dispute less the projects that erected real_property involved work that petitioner performed pri- marily as a subcontractor which petitioner calls new_construction and work that petitioner performed as a con- tractor rehabilitating dilapidated real_property which peti- tioner calls rehabilitation projects while petitioner places verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports these projects into two categories primarily on the basis of its role as a contractor or a subcontractor we do not do simi- larly each project ultimately involves the rehabilitation of dilapidated real_property and we do not think the character- ization of petitioner’s work is any different just because peti- tioner performed its work as a contractor versus a subcon- tractor to be sure petitioner’s work on the new projects was just as new as its work on the rehabilitation projects petitioner concluded that its work on each of these projects substantially prolonged the useful_life of the underlying real_property we agree that real_property typically bridges had deteriorated to a state of disrepair on account of a lack of proper maintenance and the real_property was no longer functioning as intended petitioner significantly improved and solidified the integrity of the dilapidated bridges and the other real_property through petitioner’s renovation and redesign of major structural_components thereof eg beams and joints and petitioner performed other services such as corrosion protection pavement rehabilitation and expansive joint rehabilitation petitioner’s work enhanced the operating condition of the real_property for many years into the future mr gibson concluded that each of these projects increased the useful_life of the real_property by more than years and we find that conclusion persuasive taking into account the specialized work petitioner did on each project and the final contract amounts ranging from dollar_figure to dollar_figure for these projects c additional rationale for all projects respondent argues that petitioner’s work on the casualty projects merely brought the bridges back to their normal operating condition and that petitioner’s work on the new_construction and rehabilitation projects was routine mainte- nance we disagree petitioner’s work on many of the projects petitioner also concluded that its work on of these projects materially increased the value of the underlying real_property we need not consider this conclusion given our agreement with petitioner’s primary conclusion as to one of the projects in issue job no petitioner’s sole work was patching the deck of the bridge while this work in and of itself would appear to be routine maintenance petitioner performed this work as a subcontractor on a larger project that rehabilitated the bridge given the additional facts that petitioner’s final contract amount for this job was dollar_figure and that the job was paid for with federal funds we conclude that petitioner’s work was part of a substantial renovation of the bridge and classify it as such verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner was critical and essential to the well-being and future oper- ation of the structures underlying the projects petitioner for example removed and replaced the joints on bridges because the old joints were failing from lack of proper maintenance and threatening the structure of each of the bridges as a whole similarly petitioner replaced damaged or deteriorated beams with new beams to give the bridge its requisite sup- port likewise petitioner rehabilitated a beam using special- ized materials and procedures such as epoxy heat and mechanical force mr gibson explained that petitioner performed six types of specialized work on the disputed projects and that this work either or both substantially prolonged the useful_life of the structure underlying the project or materially increased its value mr gibson listed this work as corrosion protection concrete structural renovation steel structural renovation pavement structure redesign and expansion joint rehabilitation he described each of these types of work as follows implementation rehabilitation of corrosion protection involves the removal of all rust and corrosion on the existing structural steel components and then the application of a three coat corrosion protection system to the structure the three coat process involves a base layer of zinc to protect the steel from rust a second epoxy layer to protect the base layer and a final uv layer to protect the epoxy layer the deteriorated steel beam ends must be removed and replaced before the cleaning and painting takes place a beam end is the portion of the beam beneath a joint in the deck of the bridge this protec- tion generally allows the load carrying capacity of a bridge to be increased to its original limits and extends the useful_life of the structure concrete structural renovation involves a structural renovation of a con- crete bridge without the renovation the bridge does not function as origi- nally designed eg some lanes must be closed to traffic steel structural renovation involves a structural renovation of steel on a bridge without the renovation the bridge does not function as originally designed eg some lanes must be closed to traffic this work extends the useful_life of the bridge pavement rehabilitation involves the joint and spall rehabilitation of the pavement of a bridge this process extends the useful_life of the bridge by to years implementation of structure redesign involves three different types of projects the first type involves the strengthening of structural steel the replacement of spalled concrete the installation of new bearing pads and the painting of the bridge the bearings on a bridge allow the bridge to expand contract flex and vibrate without a transfer of the resulting stress into adjacent support elements the second type involves the verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports replacement of an old bridge by a new longer and wider bridge this is done by removing the old bridge deck adding shear connectors to the steel stringers to increase the load carrying capacity cleaning and painting the bridge moving the new bridge into position and pouring concrete to serve as the deck of the bridge a stringer is a steel beam spanning lengthwise in a bridge the third type involves raising a bridge to increase the clear- ance between the bottom of the bridge and the roadway below expansion joint rehabilitation this involves rehabilitating deteriorated expansion joints to increase the useful_life of the bridge mr ronspies opined that petitioner’s work was primarily routine maintenance and he identified the following types of work performed by petitioner as routine maintenance joint replacement because he stated joints do not have the expected life of the concrete or structural steel bridge spans and it is recommended that joints be replaced regularly rehabilitation or replacement of bridge bearings because he stated this work is typically performed as part of a sched- uled maintenance program patching of concrete or asphalt by removing deteriorated concrete and replacing it with new material because he stated the patch material does not increase the life of the surrounding material painting because he stated this work is typically performed as part of a scheduled maintenance program and installing stiffeners and other structural steel because he stated this work does not increase the capacity of the bridge we disagree that these categories of work as per- formed by petitioner are routine maintenance mr gibson visited many of the jobsites of the disputed projects and he was the individual who was most familiar with the specific work that petitioner performed he testified persuasively as to the type extent and significance of the work that peti- tioner performed on each project he testified persuasively that mr ronspies failed to understand the type extent and significance of the work that petitioner performed on the projects in addition mr gibson explained that the bridges on which petitioner worked were dilapidated because they had not been properly maintained and that petitioner could not for example mr ronspies viewed job no as a simple paint job and he viewed job no as isolated asphalt repairs and some new expansion joints mr ronspies’ view was blurred as to both jobs in the former job the odot paid petitioner approximately dollar_figure to remove a perceived hazardous material to blast a bridge to remove corrosion and to apply a protective paint coating in the latter job the txdot paid petitioner approximately dollar_figure to rehabilitate the joint and spall of pavement verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner simply repair the bridges but had to rehabilitate the bridges significantly he also explained that petitioner’s addition of a protective coating to a bridge is significantly different from and more sophisticated and extensive than the outdated basic type of painting job with which mr ronspies was familiar bridges mr gibson stated used to be painted with materials that have now been established to be haz- ardous to the environment and to human health and the trend in the last decade or two has been to apply a protective coating to a bridge instead of simply painting it he explained that the protective coating is designed to last approximately or more years without any additional maintenance and that failing to coat can cause beams to rust thus resulting in the bridge not being usable anymore his testimony was echoed in many regards by mr smith’s testimony as respondent would have it the rehabilitation of one or more components of real_property would be a repair unless all of the property’s major components were replaced such is so mr ronspies stated even if the new component was or components were superior to the old component s we disagree with this view first as discussed supra pp we do not understand such a principle to apply to repairs in general second petitioner concludes and we agree that petitioner’s renovation of major components often extended the useful_life of the structures as a whole on account of the intricate interaction of all of the components petitioner’s work on a part of a structure resulted in a more permanent increment in the longevity utility and worth of the structure as a whole which in turn increased the useful_life of the overall structure see smith v commissioner f 3d pincite4 third messrs gibson and smith opined persuasively that a bridge usually does not deteriorate evenly throughout its life but that certain sections of the bridge deteriorate faster than others on account of their loca- tion on the bridge and their exposure to the weather among other reasons fourth mr smith explained that a repair of infrastructure or other similar real_property is typically an mr ronspies worked for a limited time as an overseer of a construction company’s painting operations those operations were the basic type of painting that mr gibson opined was routine maintenance and was not the contemporary painting that mr gibson stated was a substantial renovation verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports expense that the designer anticipated as part of the prop- erty’s regularly scheduled maintenance program and that such maintenance was not done here he stated that the lack of normal or routine maintenance and the resulting deterio- ration of a single component of infrastructure may make the overall infrastructure unusable because it is unsafe he stated that work such as petitioner’s which is aimed specifi- cally at components of infrastructure that have been allowed to deteriorate to a state of disrepair therefore significantly prolongs the useful_life of the infrastructure as a whole respondent argues that petitioner cannot prevail because it has not established with any specificity that its work mate- rially increased the value or substantially prolonged the use- ful life of the disputed property we disagree although the record may not allow us to pinpoint the exact increases in value or useful_life on account of petitioner’s work suffice it to say that the record supports petitioner’s conclusion that the applicable standards were met for each disputed project the bid sheets show the scope of petitioner’s work and the dollar amounts of its projects and petitioner’s use of the year and 5-percent benchmarks is reasonable in the setting at hand to establish that petitioner’s work substantially increased the value capacity efficiency strength and or quality of each of the items of real_property underlying the disputed projects all the same mr gibson on behalf of petitioner analyzed each project and ascertained whether the work on each project materially increased the value of property or substan- tially prolonged its useful_life we have included in our description of each project petitioner’s conclusion as to whether the project materially increased the value of prop- erty and or substantially prolonged its useful_life he explained that maintenance projects are anticipated by the designer and included in a regularly scheduled maintenance plan and considered when determining the life of the struc- ture he explained that regularly scheduled maintenance was lacking as to many of the structures underlying the dis- puted projects he explained that the value of a bridge declines from dollar_figure to zero over years if it has little or no maintenance but with dollar_figure of rehabilitation work the same is true as to a material increase in useful_life verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner after years the value increases from dollar_figure to dollar_figure and the life of the bridge is extended from years to years he concluded that petitioner’s major rehabilitation work on a bridge increased each bridge’s value by the cost of the rehabilitation work and prolonged the bridge’s useful_life by years we accept that rationale and understand it to apply with equal strength to petitioner’s nonbridge properties as well viii conclusion we conclude that petitioner’s projects qualify under sec_199 to the extent stated herein all arguments for a dif- ferent conclusion have been considered and those arguments not discussed herein have been rejected as without merit to take into account the parties’ concessions decision will be entered under rule appendix a casualty projects job no general type of work bridge rehabilitation highway sign shoring bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation highway repair bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation bridge rehabilitation final contract amount revenue earned in subject year rm ul v du dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- our conclusion is consistent with the legislative intent for sec_199 eg petitioner hired additional employees in years after the subject years and with u s c sec_116 the secretary of transportation presumably concluded that petitioner’s projects subject_to that title were a cost-effective means of extending the useful lives of federal-aid highways verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports casualty projects job no general type of work final contract amount revenue earned in subject year rm ul v du bridge rehabilitation bridge rehabilitation big_number big_number big_number big_number --- --- --- --- --- --- big_number project paid for with federal funds rm repair or maintenance ul v du adapted real_property to different or new use substantially prolonged useful_life of real_property materially increased value of real_property category or categories to which petitioner assigned project appendix b new_construction projects job no general type of work final contract amount revenue earned in subject year rm ul v du bridge work bridge work bridge work built blast fence bridge work bridge work bridge work bridge work highway work bridge work building work built airport ramp bridge work bridge work bridge work bridge work bridge work modified handrail bridge work bridge work bridge work bridge work bridge work bridge work bridge work highway work bridge work airport terminal work bridge work bridge work built retaining wall bridge work culvert work dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure -0- big_number -0- big_number big_number big_number -0- -0- -0- big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner new_construction projects job no general type of work final contract amount revenue earned in subject year rm ul v du misc bridge work bridge work --- big_number big_number big_number big_number big_number big_number big_number --- --- --- --- --- --- --- --- --- --- project paid for with federal funds rm repair or maintenance ul substantially prolonged useful_life of real_property v du adapted real_property to different or new use materially increased value of real_property category or categories to which petitioner assigned project appendix c rehabilitation projects job no general type of work airport pavement work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work pavement work traffic barrier wall bridge work bridge work bridge work bridge work bridge work pavement work bridge work bridge work bridge work bridge work bridge work bridge work bridge work bridge work work on civic center bridge work bridge work bridge work work on grandstand bridge work final contract amount revenue earned in subject year rm ul v du dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number -0- -0- dollar_figure big_number big_number big_number -0- -0- -0- big_number big_number -0- big_number -0- big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- verdate 0ct date jkt po frm fmt sfmt v files gibson sheila united_states tax_court reports rehabilitation projects job no general type of work bridge work bridge work streetscape work bridge work bridge work bridge work modified entranceway bridge work highway work bridge work final contract amount revenue earned in subject year rm ul v du big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number -0- big_number big_number big_number big_number -0- -0- big_number big_number --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- project paid for with federal funds rm repair or maintenance ul substantially prolonged useful_life of real_property v du adapted real_property to different or new use materially increased value of real_property category or categories to which petitioner assigned project appendix d sec_199 income attributable to domestic_production activities a allowance of deduction - in general -there shall be allowed as a deduction an amount equal to percent of the lesser of- a the qualified_production_activities_income of the taxpayer for the taxable_year or b taxable_income determined without regard to this section for the taxable_year phasein -in the case of any taxable_year beginning after and before paragraph shall be applied by substituting for the percentage contained therein the transition percentage determined under the following table for taxable years beginning in the transition percentage is or or b deduction limited to wages paid - in general -the amount of the deduction allowable under sub- section a for any taxable_year shall not exceed percent of the w- wages of the taxpayer for the taxable_year verdate 0ct date jkt po frm fmt sfmt v files gibson sheila gibson associates inc v commissioner c qualified_production_activities_income -for purposes of this section- in general -the term qualified_production_activities_income for any taxable_year means an amount equal to the excess if any of- a the taxpayer’s domestic_production_gross_receipts for such tax- able year over b the sum of- i the cost_of_goods_sold that are allocable to such receipts and ii other expenses losses or deductions other than the deduction allowed under this section which are properly allocable to such receipts domestic_production_gross_receipts - a in general -the term domestic_production_gross_receipts means the gross_receipts of the taxpayer which are derived from- ii in the case of a taxpayer engaged in the active_conduct of a construction trade_or_business construction of real_property per- formed in the united_states by the taxpayer in the ordinary course of such trade_or_business f verdate 0ct date jkt po frm fmt sfmt v files gibson sheila