Opinion ID: 507885
Heading Depth: 1
Heading Rank: 3

Heading: whether the addition is a building

Text: 22 We first address the issue of whether the Tax Court's determination that the Addition is not a building, is clearly erroneous. See Royster v. Commissioner of Internal Revenue, 820 F.2d 1156, 1157 (11th Cir.1987) (review of Tax Court's factual determinations is governed by the clearly erroneous standard of Fed.R.Civ.P. 52(a)); Turner v. Commissioner of Internal Revenue, 812 F.2d 650, 654 (11th Cir.1987) (same). 23 Although Congress did not provide a definition for the term building for purposes of the investment tax credit when passing the Revenue Act of 1962, the term is defined in section 1.48-1(e)(1) of the Treasury Regulations as: 24 any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. The term includes, for example, structures such as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, and stores. 25 Treas.Reg. Sec. 1.48-1(e)(1). Although it is clear that Congress intended that the term building be accorded its commonly accepted meaning, a precise definition of the term has remained elusive and the Tax Court has noted, as used in this context, 'has caused much consternation among taxpayers and has produced a correspondingly large amount of litigation.'  4 Munford, Inc. v. Commissioner, 87 T.C. 463, 478 (1986) (quoting Scott Paper Co. v. Commissioner, 74 T.C. 137, 177 (1980) (citations omitted)). 26 In determining whether a structure is a building for investment tax credit purposes, federal courts have generally applied a twofold test, which considers both the appearance and function of the particular structure. See, e.g., Illinois Cereal Mills, Inc. v. Commissioner of Internal Revenue, 789 F.2d 1234, 1238-39 (7th Cir.1986); Consolidated Freightways, Inc. v. Commissioner of Internal Revenue, 708 F.2d 1385, 1387-90 (9th Cir.1983); A.C. Monk & Co. v. United States, 686 F.2d 1058, 1061 (4th Cir.1982). 27 The appearance test has its genesis in that portion of Treasury Regulation Sec. 1.48-1(e)(1) which states that a building generally means any structure or edifice enclosing a space within its walls, and usually covered by a roof.... Treas.Reg. Sec. 1.48-1(e)(1). As the Tax Court noted, it is clear from both the testimony of witnesses, as well as photographs in the record, that in appearance, the Addition to Munford's refrigerated warehouse resembles a building. Because Munford has not argued to the contrary in either the Tax Court or on appeal, we are satisfied that the Tax Court's finding is not clearly erroneous. As mentioned previously, however, the appearance test is not dispositive of whether the Addition is a building under Treas.Reg. Sec. 1.48-1(e)(1). Accordingly, we now focus our attention on whether the Tax Court properly found that the refrigerated portion of the Addition is not a building because it does not satisfy the functional test of the regulation. 28 Similar to the appearance test which is derived from Treas.Reg. Sec. 1.48-1(e)(1), the function test is also derived from a portion of that same regulation which provides that a structure is a building if its purpose ... is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. Treas.Reg. Sec. 1.48-1(e)(1). A structure qualifies as a building under the functional test if its purpose is one of those enumerated in the regulation, or, is another purpose which could be added to those enumerated in the regulation without violating the constraining rules of ejusdem generis. Thirup v. Commissioner of Internal Revenue, 508 F.2d 915, 919 (9th Cir.1974). 29 In determining that the refrigerated portion of Munford's Addition did not qualify as a building under the functional test of Treas.Reg. 1.48-1(e)(1), the Tax Court reasoned: 30 We think that the principal purpose or function of the refrigerated area is not to furnish working space for petitioner's employees, but rather, to provide an area in which frozen foods may be stored at low temperature. In contrast with the truck and rail loading platforms, the refrigerated area of the Addition is maintained at a temperature which limits, rather than promotes, human activity. Due to the cold temperature, the activities of petitioner's employees are limited in both scope and duration. In the case of the Addition's refrigerated area, the structure itself serves the principal function of low temperature storage of products, and the activities of petitioner's employees are merely supportive of and ancillary to this function. Accordingly, we conclude that the refrigerated portion of the Addition is not a building under the functional test. 31 Munford, 87 T.C. at 483. 32 In reviewing this determination, we begin with the premise that in the investment tax credit context, the term 'building' has become a term of art, notwithstanding Congress's original intent that the term be accorded its commonly accepted meaning. Munford, 87 T.C. at 478; see also H.R.Rep. No. 1447, 87th Cong., 2d Sess. (1962-3 C.B. 405, 516). Indeed, were we to accept the Commissioner's assertion that the term building be interpreted only as that term is understood in common parlance, we would circumscribe the class of structures eligible for the investment tax credit. See, e.g., Brown and Williamson Tobacco Corp. v. United States, 491 F.2d 1258 (6th Cir.1974) (tobacco drying sheds are not buildings because they provide only incidental working space); Thirup v. Commissioner of Internal Revenue, 508 F.2d 915 (9th Cir.1974) (a greenhouse is not a building by function); Brown-Forman Distillers Corp. v. United States, 205 Ct.Cl. 402, 499 F.2d 1263, 1269-72 (1974) (whiskey maturation facilities are not buildings based on function). 33 The Commissioner argues that under the functional test of Treas.Reg. Sec. 1.48-1(e)(1), the Addition is a building because its sole purpose is to serve as a warehouse for the storage of prepackaged frozen goods. While it is true, the Commissioner argues, that the sub-freezing temperatures within the refrigerated area are not conducive to human activity, Treas.Reg. Sec. 1.48-1(e)(1) also provides that a structure is a building for purposes of the investment tax credit if its function is to provide shelter. In this regard, the Commissioner notes that Treas.Reg. Sec. 1.48-1(e)(1) expressly provides that the term building includes a structure used as a warehouse. Munford, urges that the Commissioner misstates the functional test of Treas.Reg. Sec. 1.48-1(e)(1) by placing undue emphasis on the word shelter without addressing the dispositive question whether the structure provides working space that is more than merely incidental to the primary purpose of the structure. 34 Simply denominating a structure as a warehouse does not necessarily warrant a finding that the structure is a building under Treas.Reg. Sec. 1.48-1(e)(1). Merchants Refrigerating Co. v. Commissioner, 60 T.C. 856, 859 (1973). As the Tax Court noted, the major focus of inquiry under the functional test is whether the structure provides working space which is more than merely incidental to the main purpose of the structure. See, e.g., Consolidated Freightways, 708 F.2d at 1388-89. In this case, the evidence establishes that Munford's employees entered the refrigerated area of the Addition only to store or remove goods, take inventory, and perform occasional repairs and maintenance. Munford, 87 T.C. at 485. Like the Tax Court, we find these activities to be of insufficient magnitude to compel a finding that the human activity inside the refrigerated area is anything other than incidental to its primary purpose of maintining sub-zero temperatures to prevent the spoilage of frozen foods. Accordingly, we hold that the Tax Court's finding that the refrigerated area of the Addition is not a building within the meaning of Treas.Reg. Sec. 1.48-1(e)(1), is not clearly erroneous. See also Catron v. Commissioner, 50 T.C. 306 (1968) (holding that the refrigerated area of a large Quonset-type structure used for the cold storage of apples was eligible for the investment tax credit as a qualifying storage facility under section 48(a)(1)(B)(ii) as then in effect); Merchants Refrigerating, 60 T.C. at 856 (holding that a large freezer room which was used for the storage of frozen foods was not a building, and that it qualified as a storage facility under section 48(a)(1)(B)(ii) as then in effect); Central Citrus Company v. Commissioner, 58 T.C. 365 (1972) (holding that atmospherically controlled sweet rooms used to ripen fruit were not buildings, and that they qualified as storage facilities under section 48(a)(1)(B)(ii) as then in effect). 35