Walgreen Co. & Subsidiaries - Page 3

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          1006 (7th Cir. 1995), revg. and remanding 103 T.C. 582 (1994).              
          In its opinion, the Court of Appeals quoted Rev. Proc. 77-3,                
          1977-1 C.B. 535, as directing that "'all classes of Rev. Proc.              
          72-10 * * * are hereby represcribed to include items of section             
          1250 property that were included prior to January 1, 1974 * * *             
          except for * * * Building Services and * * * Land Improvements.'"           
          Id. at 1008.  From this the Court of Appeals reasoned that                  
               if any items of section 1250 property, and specifically                
               the leasehold improvements that Walgreen made in its                   
               drugstores and restaurants between 1980 and 1984, had                  
               been included in Wholesale and Retail Trade by Rev.                    
               Proc. 72-10, they continued to be included in it after                 
               the Treasury "represcribed" the classes of Rev. Proc.                  
               72-10 (all but Building Services and Land Improvements)                
               in 1977.                                                               
                    The Asset Depreciation Range system was later                     
               replaced by the Accelerated Cost Recovery System, and                  
               it is the latter system that is applicable to the                      
               leasehold improvements in this case.  But it                           
               incorporates by reference the earlier classifications,                 
               with the result that if the leasehold improvements are                 
               classified in Wholesale and Retail Trade (now Class                    
               57.0, but identical to the old Class 50.0, Hauptli v.                  
               Commissioner, 56 T.C.M. (CCH) 583, 586, 1988 WL 116965                 
               (T.C. 1988), revd. on other grounds, 902 F.2d 1505                     
               (10th Cir. 1990)), Walgreen can depreciate them over 10                
               years.  Otherwise it must depreciate them over either                  
               15 or 18 years, depending on the dates on which various                
               improvements were made.  26 U.S.C. sections                            
               168(c)(2)(C)(ii), (D), (g)(2) (1984).                                  
                    In summary, when in 1972 the Internal Revenue                     
               Service (in Rev. Proc. 72-10) repromulgated the class                  
               Wholesale and Retail Trade after "eligible property"                   
               had been expanded to include section 1250 property, the                
               effect was to bring within the class all assets used in                
               wholesale or retail trade except those classifiable                    
               under Building Services; and when five years later the                 
               Service repromulgated the Wholesale and Retail Trade                   





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