TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY

[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 -
                  (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]