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Petitioner claimed an ITC for the cost of the Mezzanine
System on its 1986 return. The ITC, totaling $169,706, was based
upon $1,697,061.80 in costs associated with the components of the
Mezzanine System.8 Respondent disallowed this ITC in the amount
of $60,985 with respect to $609,852.79 of these costs. In
addition, petitioner claimed a deduction on its 1986 and 1987
returns for depreciation on the entire cost of the Mezzanine
System based upon the accelerated 5-year useful life method under
section 168(b)(1). Petitioner also claimed on its 1986 return an
interest expense deduction for all interest accrued during the
construction of the Mezzanine System. None of this interest was
capitalized under section 189 by petitioner.
OPINION
The issue for consideration is whether petitioner is
entitled to ITC's under section 38 with respect to the costs of
the Reserve Facility and the Mezzanine System to an extent
8Petitioner claimed an ITC on a Mezzanine System consisting
of the following items: (1) Ground-level storage racks and
cantilever shelving; (2) a horizontal steel structure joined to
and mounted on the top of the ground-level racks; (3) plywood
decking placed upon the horizontal structure that creates the
mezzanine level; (4) additional racks and shelving rising from
the mezzanine decking to a height of approximately 6 feet; (5)
additional columns and beams; (6) four one-piece stairway units
connecting the first floor to the mezzanine; and (7) lightweight
rolled steel frames that support the plywood decking and framing
at the northwest and southeast corners along the periphery of the
Mezzanine System where there are no ground-level racks.
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