George A. and Marysue Coward - Page 11

                  Section 48(b) defines "new section 38 property" as section                             
            38 property "acquired after December 31, 1961, if the original                               
            use of such property commences with the taxpayer".  Section 38                               
            property acquired by purchase that is not new section 38 property                            
            is considered "used section 38 property."  Sec. 48(c).  The                                  
            original use of property is "the first use to which the property                             
            is put, whether or not such use corresponds to the use of such                               
            property by the taxpayer."  Sec. 1.48-2(b)(7), Income Tax Regs;                              
            see Baicker v. Commissioner, 93 T.C. 316, 322 (1989).  The amount                            
            of the investment tax credit may depend on whether the section 38                            
            property is new or used within the meaning of section 48.  Sec.                              
            48(c)(2).3  Property generally is "placed in service" in the year                            
            in which such property is "placed in a condition or state of                                 
            readiness and availability for a specifically assigned function".                            
            Sec. 1.46-3(d), Income Tax Regs.                                                             
                  In this case, the evidence indicates that the partnership                              
            came into existence for Federal tax purposes as of December 28,                              
            1978, the date on which the limited partners made capital                                    
            contributions to the partnership.  Up until that time, the                                   
            partnership was without capital and could not conduct business.                              
            Although the partnership agreement was entered into on December                              

            3     For tax year 1978, sec. 48(c)(2)(A) provides:  "The cost of                            
            used section 38 property taken into account under section                                    
            46(c)(1)(B) for any taxable year shall not exceed $100,000."                                 
            This limitation applies at the partnership level and at the                                  
            partner level.  Sec. 48(c)(2)(D).                                                            

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Last modified: May 25, 2011