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

Heading: Is it a building?

Text: 53 In holding that the Addition was not a building, the tax court in Munford, Inc. v. Commissioner, 87 T.C. 463 (1986), made the following various comments in its opinion: 54 We think that the refrigerated area of the Addition is not fairly distinguishable from those structures held not to be buildings in Catron, Central Citrus and, more particularly, Merchants Refrigerating. Thus, following our decisions in those cases, we hold that the refrigerated area of the Addition is not a building. 55 Id. at 485 (footnotes omitted). 56 In Rev.Rul. 74-452, 1974-2 C.B. 11, respondent has indicated that warehouses are generally conventional buildings used for general storage purposes. Although respondent concluded therein that certain refrigerated structures used for storing frozen foods were warehouses and not sec. 38 property, we do not think that a facility such as the Addition is a conventional building used for general storage purposes. First, the Addition is not a conventional building, since it contains numerous construction features which would not be found in a conventional or dry warehouse. Second, the Addition is not, in our view, used for general storage purposes, but rather, is both designed and used for the much more specific purpose of storing frozen foods at low temperatures. Thus, notwithstanding respondent's contrary conclusion in Rev.Rul. 74-452, we do not think that a structure like the Addition can fairly be considered a warehouse as that term has been used by respondent in the cited ruling. 57 Id. at 485-86 n. 21. 58 In response to the Commissioner's argument that the Addition could be used as a conventional warehouse, the court stated: 59 Furthermore, even if we considered adaptability to be a relevant factor in this context, we would still reject respondent's position, since we think that the Addition is not reasonably adaptable to uses other than low temperature storage. Respondent contends that if the refrigeration system were simply switched off, the Addition could be economically used as a dry warehouse. However, petitioner provided credible testimony, supported by pro forma financial statements, to show that the Gateway Facility, of which the Addition was a part, could be operated profitably as a refrigerated facility, but would operate at a substantial loss if used as a dry warehouse. We find this evidence to be convincing. 60 Id. at 487. 61 To understand why the tax court reached this conclusion and to explain why I conclude that the Addition is a giant refrigerator, it is helpful to know the nature of the construction of the Addition as found by the tax court: 62 The foundation of the Addition consists of concrete footings which support the structure. In order not to be affected by the cold temperatures within the Addition, the footings are placed at a depth of 2 to 3 feet below the floor. Above the foundation, there is a system of under-floor ventilation pipes intended to prevent the earth below the structure from freezing; without this system, frost buildup in the fill beneath the Addition would eventually cause the concrete slab floor of the structure to heave and crack. Air is drawn through the ventilation system by fans, and the system can be enhanced if necessary, by forcing heated air through the pipes. 63 The under-floor ventilation system is covered by a bed of sand. Above the sand bed is a vapor barrier consisting of polyethylene laid out in large sheets. The vapor barrier, which extends from beneath the floor and continues vertically inside the walls of the Addition, is intended to prevent moisture from penetrating the Addition. The portion of the vapor barrier located beneath the floor is sealed at the joints to prevent any moisture penetration from the earth, and is covered by 6 inches of low temperature insulation. This insulation was placed directly upon the vapor barrier in two segments, or boards, which were staggered at the joints to reduce channels for temperature migration. 64 The floor of the Addition consists of a concrete slab which was poured over the low temperature insulation. Since contraction in the floor could occur as a result of the low temperatures within the Addition, a number of contraction joints were provided in the slab to minimize the possibility of cracking. Moreover, since the slab rests upon low temperature insulation, which is rather compressible relative to normal soil, the slab contains long steel rod dowels inserted in sleeves across the contraction joints in order to maintain proper alignment of the slab surface. Nothing protrudes from the floor surface but concrete curbs which line the base of the walls and act as bumper guards for the forklifts. 65 The outer walls of the Addition consist of tilt-up concrete panels which were cast on site using conventional building materials and tilted into place. At the corners abutting the floor and walls of the structure, the continuity of the polyethylene vapor barrier is maintained. The sheets comprising the vapor barrier extend up along the inside of the walls of the structure and are hung from a point near the top of the walls. The joints of the vapor barrier are sealed. 66 The vapor barrier is covered within the walls of the Addition by 8 inches of low temperature insulation. This insulation was erected against the walls in two layers, with staggered joints to minimize temperature migration. To protect and provide continuity for the vapor barrier and the insulation, a high strength corner flashing (reinforcement material) is located at the joints where the wall insulation and the floor insulation overlap. Similarly, continuity of the vapor barrier and insulation is maintained by means of overlapped joints at the abutting wall corners of the structure. The insulation layers are covered on the interior of the structure by 5/8-inch type X fire-resistant gypsum board. The gypsum board is intended to protect the insulation from damage. In addition, since it is highly flammable, the insulation is required by fire code guidelines to be enclosed in an air tight manner, and the gypsum board also performs this function. The insulation and the vapor barrier are not visible in the finished Addition, and cannot be removed without tearing out the existing wall and floor structures. 67 The roof of the Addition is constructed of steel decking. In order to maintain continuity of the vapor barrier and insulation at the juncture of the roof and the walls, the roof is not supported by the walls of the structure, but rather, rests upon columns of structural steel located within the Addition near the walls. The gap between the roof and walls is designed to allow the vapor barrier and insulation to turn the corner from the walls and continue along the roof without interruption. 68 The roof has 10 inches of low temperature insulation, comprised of two layers. A continuous wood blocking is bolted to the roof deck near the perimeter of the deck (near the upper portion of the walls) and the first layer of roofing insulation is located between the blocking and the wall insulation under compression, forming a tight seal. In addition to the low temperature insulation, the roof also contains two layers of noncombustible insulation board. The lower layer serves to separate the steel deck from the flammable low temperature insulation, and the upper layer was installed principally to allow hot bitumen (asphalt) to be mopped onto the built-up roof without damaging the low temperature insulation. Each layer of insulation board is attached to the low temperature insulation by means of adhesives. The joints of both the noncombustible and low temperature insulation are staggered to reduce channels for temperature migration. The built-up roofing of the Addition serves as a continuation of the vapor barrier and insulation as found within the walls and beneath the floor of the structure. 69