George A. and Marysue Coward - Page 14

            original use within the meaning of section 48.7  Thus,                                       
            petitioners have failed to establish that the original use of                                
            these bred heifers commenced with the partnership.  Therefore, by                            
            definition they are deemed to be used section 38 property when                               
            the partnership acquired them.                                                               
                  Based on the record, we find that the cattle were placed in                            
            service by the partnership on December 28, 1978.  The cows, the                              
            majority of which had already been bred, were in a state of                                  
            readiness for their assigned function of breeding.  Petitioner                               
            was a partner in the partnership at that time, and thus                                      
            petitioners are entitled to a distributive share of the                                      
            investment tax credit basis and cost for the purchase of the                                 
            cattle.8  For these purposes, the partnership's cost of the bred                             
            heifers is limited to $100,000.  Sec. 48(c)(2).                                              

            7           In determining whether livestock acquired by a taxpayer                          
                  is new or used property for purposes of the credit, the                                
                  committee intends that livestock be treated in a manner                                
                  consistent with that provided in the Treasury regulations                              
                  for other types of property.  Property is considered new                               
                  property for purposes of the credit if its original use                                
                  commences with the taxpayer.  The regulations provide that                             
                  the term "original use" means the first use to which                                   
                  property is placed, whether or not the use corresponds to                              
                  the use of the property by the taxpayer.  However, where the                           
                  property qualifies as a breeding or dairy animal, it will                              
                  normally be regarded as a new article at the time it is                                
                  first used for these purposes, that is, at the time its                                
                  suitability is established by the bearing of a calf or the                             
                  giving milk, assuming it has not been used for other                                   
                  purposes prior to that time.                                                           
            S. Rept. 92-437 at 33, (1971), 1972-1 C.B. 559, 577.                                         
            8     Petitioner's sharing ratio is based upon his profits-sharing                           
            ratio, 85 percent of 18.182 percent or 15.455 percent.                                       

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