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Because the system constitutes separate property, respondent
argues that petitioner failed to incur or commit $1 million or 5
percent of costs as of December 31, 1985, and failed to begin
construction as of that date.
Petitioner relies on Steelcase, Inc. v. United States, 76
AFTR 2d 5185, 95-2 USTC par. 50,336 (W.D. Mich. 1995), to support
its argument that “The redesign of ‘property’ during construction
simply does not create separate ‘property’ as Respondent
suggests.” We find that the building in Steelcase is
distinguishable from petitioner’s instrument air upgrade. The
taxpayer in Steelcase redesigned its building after construction
had begun and before the completion of the building, while
petitioner placed the instrument air system in service in St.
Lucie Units 1 and 2 when they became operational, and then
redesigned the system several years later. The rationale of
Steelcase, which found that property could qualify as self-
constructed property when a taxpayer made design modifications
during construction, does not allow taxpayers to redesign
property after the transition date when it has placed the
facility in service and then decides to reconstruct the component
at a later date. Because St. Lucie Units 1 and 2 were placed in
service and operated before the installation of the instrument
air upgrade, we think that the components at issue constitute
separate property. Armstrong World Indus., Inc. v. Commissioner,
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