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[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.48-10]
[Page 353-357]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
PART 1--INCOME TAXES--Table of Contents
Sec. 1.48-10 Single purpose agricultural or horticultural structures.
(a) In general--(1)
Scope. Under section 48(a)(1)(D), ``section 38 property'' includes single
purpose agricultural and horticultural structures, as defined in section
48 (p) and paragraphs (b) and (c) of this section. These structures are
subject to a special rule for recapture of the credit. See paragraph
(g) of this section. For the relation of this section to section 48(a)(1)(B)
(other tangible property) and to sections 1245 and 1250 (depreciation
recapture), see paragraph (h) of this section.
(2) Effective date. The provisions of section
48(a)(1)(D) and this section apply to open taxable years ending after August
15, 1971.
(b) Definition of single purpose agricultural
structure--(1) In general. Under section 48(p)(2), a single purpose agricultural
structure is any structure or enclosure that meets all of the following requirements:
(i)
It is specifically designed and constructed for permissible purposes (as defined
in paragraph (b)(2) of this section). See paragraph (d) of this section for the
rule regarding ``specifically designed and constructed''.
(ii)
It is specifically used exclusively for those permissible purposes. See paragraph
(e) of this section for the rules regarding ``specifically used''.
(iii)
It houses equipment necessary to house, raise, and feed livestock and their produce.
See paragraphs (b)(3) and (4) of this section.
(2) Permissible purposes. The following are
the only permissible purposes for a single purpose agricultural structure:
(i)
Housing, raising, and feeding a particular type of livestock and, at the taxpayer's
option, its produce. The term ``housing, raising, and feeding'' includes the
full range of livestock breeding and raising activities, including ancillary
post-production activities (as defined in paragraph (f) of this section). Thus,
for example, use of a structure for breeding livestock, or for producing eggs
or livestock, is permitted. The structure may also be used for storing feed or
machinery, but more than strictly incidental use for these purposes will disqualify
the structure. See paragraph (e)(1) of this section. For the special rule concerning
the permissible purposes for a milking parlor, see paragraph (b)(2)(iii) of this
section.
(ii)
Housing required equipment (including any replacements) as defined in paragraph
(b)(4) of this section.
(iii)
If the structure is a dairy facility, it will qualify if it is used for: (A)
activities consisting of the production of milk or of the production of milk
and the housing, raising, or feeding dairy cattle, and (B) housing equipment
(including any replacements) necessary for these activities. The term ``housing,
raising, or feeding'' includes the full range of dairy cattle breeding and raising
activities including ancillary post-production activities (as defined in paragraph
(f) of this section). The structure may also be used for storing feed or machinery,
but, more than incidental use for these purposes will disqualify the structure.
See paragraph (e)(1) of this section.
(3) Livestock; particular type of livestock
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(i)
Livestock. Livestock qualifying as ``section 38 property'' under Sec. 1.48-1(l)
constitutes livestock for purposes of this section. Thus, for example, horses
are not livestock for purposes of this section since they do not qualify as ``section
38 property'' under Sec. 1.48-1(l). Under section 48(p)(6) poultry constitutes
livestock for purposes of section 48(a)(1)(D). The term ``livestock'' includes
the offspring of livestock. ``Livestock'' is distinguished from the produce of
livestock, such as milk and eggs held for sale. For purposes of this section,
eggs held for hatching and newborn livestock are considered livestock. A structure
used solely to house produce of livestock or equipment necessary to house produce
of livestock will not qualify as a single purpose agricultural structure. Thus,
for example, a dairy facility used solely for storing milk will not qualify.
(ii)
Particular type of livestock. A structure qualifies as a single purpose agricultural
structure only if it is specifically designed, constructed, and used exclusively
for permissible purposes with respect to one particular type of livestock. For
purposes of this section, each species is a different type except that all species
of poultry are considered to be of a single type. Thus, for example, a structure
specifically designed and constructed as a single purpose hog-raising facility
will not qualify if it is used to raise dairy cows, but a structure specifically
designed, constructed, and used to raise poultry may house, raise, and feed both
chickens and turkeys.
(4) Required equipment rule.
(i)
A single purpose agricultural structure must also house equipment necessary to
house, raise, and feed the livestock (``required equipment''). Required equipment
must be an integral part of the structure, and includes, but is not limited to,
equipment necessary to contain the livestock, to provide them with water or feed,
and to control the temperature, lighting, and humidity of the interior of the
structure. For purposes of this section, equipment is an integral part of the
structure if it is physically attached to or a part of the structure. The useful
life of the structure, however, need not be contemporaneous with the life of
the equipment it houses. A structure without required equipment is not a single
purpose agricultural structure.
(ii)
A single purpose agricultural structure may, but is not required to, house equipment
(for example, loading chutes) necessary to the conduct of ancillary post-production
activities as defined in paragraph (f) of this section.
(5) Livestock structure. In section 48(p)(2),
the terms ``single purpose livestock structure'' and ``single purpose agricultural
structure'' are interchangeable.
(c) Definition of single purpose horticultural
structure--(1) In general. Under section 48(p)(3), a single purpose horticultural
structure is any structure that meets both of the following requirements:
(i)
It is a greenhouse or other structure specifically designed and constructed for
permissible purposes (as defined in paragraph (c)(2) of this section). See paragraph
(d) of this section for the rule regarding ``specifically designed and constructed.''
(ii)
It is specifically used exclusively for those permissible purposes. See paragraph
(e) of this section for the rules regarding ``specifically used.''
(2) Permissible purposes. The following are
the only permissible purposes for a single purpose horticultural structure:
(i)
The commercial production of plants (including plant products such as flowers,
vegetables, or fruit) in a greenhouse.
(ii)
The commercial production of mushrooms.
(iii)
A single purpose horticultural structure also may, but is not required to, house
equipment necessary to carry out these permissible purposes listed in paragraphs
(c)(2) (i) and (ii) of this section.
(3) Ancillary post-production activities.
The terms ``commercial production of plants'' and ``commercial production of
mushrooms'' include ancillary post-production activities (as defined in paragraph
(f) of this section).
(d) Specifically designed and constructed.
A structure is specifically designed and constructed if it is not economic to
design and construct the structure for the intended qualifying purpose and then
use the structure for a different purpose. For example, if a hog raising structure
is designed and constructed in accordance with a standard set of plans for such
a structure provided by the Department of Agriculture, it would not be economic
to use the structure for purposes other than hog raising.
(e) Specifically used. There are two aspects
of the specific use requirement--exclusive use and actual use.
(1) Exclusive use. (i) A structure qualifies
as a single purpose agricultural or horticultural structure only if it is used
exclusively for the permitted purposes by reason of which it qualified for the
credit. Thus--
(A) The structure may not be used for any
nonpermissible purposes (for example, processing, marketing, or more than incidental
use for storing feed or equipment) and
(B) It may not be put to any use other than
the specific use by reason of which it qualifies for the credit.
(ii)
For purposes of this section, the term ``incidental use'' means a use which is
both related and subordinate to the qualifying purpose. Thus, for example, if
feed is stored in an agricultural structure which will be used for raising hogs,
the feed must be used only for the hogs in order to be related to the qualifying
purpose. In determining whether use of the structure for feed storage is subordinate
to the qualifying purpose, all of the facts and circumstances must be considered,
including, with respect to feed storage, the following:
(A) Type of animal involved;
(B) Number of, and consumption rate for,
each animal;
(C) Climate of area;
(D) Total volume of storage area; and
(E) Percentage of structure's total volume
devoted to storage.
(iii)
It will be presumed that the storage function is not subordinate to the qualifying
purpose of the structure if more than one-third of the structure's total usable
volume is devoted to storage. This presumption may be rebutted with clear and
convincing evidence.
(iv)
A structure may fail the exclusive use test if either of the requirements of
paragraph (e)(1)(i) of this section is not met. Thus, for example, a horticultural
structure that contains an area for processing plants or plant products will
fail the exclusive use test because there is a nonpermissible use. An agricultural
structure that is used to house more than one particular type of livestock fails
the exclusive use test for the same reason. A change in the use of an agricultural
structure from one species of livestock to another will cause the structure to
fail the exclusive use test when the change occurs. Thus, for example, a hog-raising
facility which qualified for the credit when it was placed in service cannot
later be modified and used for producing broiler chickens even if the structure
would have qualified for the credit if it had been originally designed, constructed,
and used exclusively for producing broiler chickens.
(2) Actual use. (i) A single purpose agricultural
or horticultural structure also must actually be used for the permissible purpose
by reason of which it qualifies for the credit. ``Actual use'' means ``placed
in service'' (as defined in Sec. 1.46-3(d)). Mere vacancy, on a temporary basis,
will not disqualify the structure. Thus, for example, a structure that is designed
and constructed as a hog-raising structure will not qualify if it is never placed
in service for raising hogs. However, a turkey-raising facility will not be disqualified
if the turkeys are all sent to a packing plant in November and the structure
remains vacant until the next spring when newly hatched turkeys are placed in
the structure to be raised.
(ii)
For purposes of this section, ``vacancy on a temporary basis'' includes temporary
vacancy caused by market fluctuations or other economic considerations and vacancy
on a seasonal basis.
(f) Work space; ancillary post-production
activities--(1) Permissible work space. Under section 48(p)(4), a single purpose
agricultural or horticultural structure may contain work space only if it is
used for--
(i)
Stocking, caring for, or collecting livestock, plants, or mushrooms,
(ii)
Maintenance of the structure, or
(iii)
Maintenance or replacement of the equipment or stock enclosed by or contained
in the structure. Thus, for example, an eligible structure may not contain space
devoted to processing or marketing or other nonpermissible purposes.
(2) Ancillary post-production activities.
The term ``stocking, caring for, or collecting'' the livestock, plants, or mushrooms
includes ancillary post-production activities. These activities, therefore, constitute
permissible purposes when carried on in conjunction with other permissible purposes,
and a qualifying structure may contain work space devoted to such activities.
Ancillary post-production activities include gathering, sorting, and loading
livestock, plants, and mushrooms and packing unprocessed plants, mushrooms, and
the live offspring and unprocessed produce of the livestock. Ancillary post-production
activities do not include processing activities, such as slaughtering or packing
meat, nor do they include marketing activities.
(g) Special rule for recapture under section
47. Under section 48(p)(5), if a structure which qualifies for the credit under
this section becomes ineligible because it ceases to be held for the specific
use by reason of which it qualified (or it is used for other than that qualifying
use) before the end of the applicable estimated useful life or period specified
in section 47(a), then the investment credit previously allowed with respect
to the structure may be partially or entirely recaptured under section 47. Unlike
other property to which section 47 applies, single purpose structures may not
be converted from one permissible use to another without recapture. See subparagraph
(e)(2) of this section.
(h) Relationship to other sections--(1) Relation
to section 48(a)(1)(B). All structures satisfying the requirements of section
48(a)(1)(B) and (a)(1)(D) will be considered to qualify under either provision.
(2) Relationship to sections 1245 and 1250.
For purposes of depreciation recapture, property to which section 48(a)(1)(D)
applies is section 1245 property, except that property placed in service prior
to January 1, 1981, may, at the option of the taxpayer, be treated as section
1250 property if depreciation deductions allowed were not under one of the methods
authorized only for section 1245 property.
(i)
[Reserved]
(j) Examples. The provisions of this section
may be illustrated by the following examples:
Example 1. A constructs a rectangular structure
for use as an egg-producing facility. The structure has no windows. The walls
and roof are made of corrugated steel and there is a door which is 4 feet wide
and 8 feet tall at each end of the structure. At the end of each wall are louvered
openings approximately 4 feet high and 8 feet long. These openings house thermostatically
controlled fans. In the center of the walls are manually operated fresh-air openings.
Corrugated steel ``curtains'' hang from the top of the openings so that the openings
can be completely closed in cold weather, but the curtains can be propped open
to admit fresh air. The building is well insulated. A has reinforced the roof
with extra trusses and rafters and reinforced the building with extra wall studs.
Two rows of cages are suspended from the rafters by thin steel girders and wires.
The floor of the structure is a sloping concrete slab pierced with long troughs
which run the length of the structure beneath the cages. The troughs are used
for collection and disposal of chicken wastes. When this structure is placed
in service it will qualify for an investment credit under this section.
Example 2. B constructs a greenhouse for
the commercial production of plants. The greenhouse is a rectangular structure
with translucent fiberglass walls and roof. The structure is equipped with an
automatic temperature and humidity control system. Pipes were installed to carry
water and liquid fertilizer to the plants and to release minute amounts of carbon
dioxide into the air. When the structure was originally placed in service B used
the entire structure for growing flowers commercially. In September 1978, B began
to use the structure for growing tomatoes. Because of the success of the venture,
in January 1979, B began to use the entire structure for growing tomatoes. In
February 1980, B set up a small counter with a cash register at one end of the
structure so that workers could sell tomatoes to customers at the greenhouse.
Until February 1980, the structure would qualify for the credit under this section.
The change in use from growing flowers to growing tomatoes will not affect the
eligibility of the structure. Once the cash register is installed, however, the
structure fails to meet both the exclusive use test of paragraph (e)(1) of this
section and the work space rule of paragraph (f) of this section since a single
purpose structure may not be used for marketing activities.
Example 3. C purchases a prefabricated structure
and makes modifications so that the structure will meet C's requirements. C adds
gates and constructs a partition which divides the structure into two parts.
One part of the structure constitutes less than one-third of the total usable
volume of the structure and is used to house feeder cattle while they are fed
with hay. This part of the structure has a sloping concrete floor. The other
part of the structure constitutes more than two-thirds of the total usable volume
of the structure and is used to store the hay used to feed the cattle. This structure
will not qualify for the credit since it fails the required equipment test. The
structure does not contain equipment which is an integral part of the structure.
This structure also fails the ``specifically designed and constructed'' test
of paragraph (d) of this section since it would be economic to use the structure
for purposes other than housing, raising, and feeding cattle (such as a general
purpose barn, for example). Finally, the structure fails the incidental use test
of paragraph (e) of this section because the storage function is presumptively
not subordinate to the qualifying purpose since more than two-thirds of the structure's
total usable volume is devoted to storage and none of the facts will serve to
rebut the presumption.
(Secs. 7805 (68A Stat. 917, 26 U.S.C. 7805) and 38 (b) (76 Stat. 926, 26 U.S.C. 38))
[T.D. 7900, 48 FR 32768, July 19, 1983; 48 FR 36448, Aug. 11, 1983]
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