Vanalco, Inc., a Delaware S Corporation, Richard L. Smith, Tax Matters Person - Page 17




                                       - 17 -                                         

          rupture and the molten metal will spill once the integrity of the           
          lining is breached and the steel shell exposed, unless the cell             
          unit is taken out of operation and the lining is replaced.                  
               The parties have stipulated that (1) the cell linings have             
          an average useful life of approximately 3 years, and (2) the cost           
          of removing and replacing an exhausted lining is $23,334 plus               
          some miscellaneous costs.  Thus, the cell lining has a life that            
          is independent of the cell unit as a whole, and the cost of the             
          lining as a percentage of the total cost of the cell unit is                
          substantial.8  Moreover, the evidence submitted shows that the              
          replacement cell lining material is a very substantial portion of           
          the cell unit.  Cf. Badger Pipe Line Co. v. Commissioner, supra             
          (relocation of approximately 1,000 feet of a 25-mile 16-inch                
          pipeline); Libby & Blouin, Ltd. v. Commissioner, 4 B.T.A. 910,              
          914 (1926) (replacement of many small parts to repair a large               
          machine).                                                                   
               The parties agree on brief that the cell lining is not an              
          asset separate from the cell unit.  However, considering the                
          facts and circumstances of this case, the difference between the            
          cell lining as a separate asset and as a substantial and                    
          essential component is one of semantics, not substance.  Cf.                


               8The replacement cell lining is 22.21 percent of the cost of           
          the rehabilitated cell unit (($17,933 + $5,401) � ($99,666 +                
          $5,401)).                                                                   




Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011