IRS Claim That Building Not Placed in Service Until Store Open For Business "Totally Without Merit."

In this case, the petitioner operated a retail business that sold home building materials and supplies.  The petitioner built two new retail stores.  As of December 31, 2008, the buildings were substantially complete and partially occupied and the petitioner had obtained certificates of completion and occupancy and customers could enter the stores.  However, the stores were not open for business as of the end of 2008.  The petitioner claimed the 50 percent GoZone depreciation allowance for 2008 on the two buildings which created a tax loss for 2008 and allowed the petitioner to carry back the losses for the 2003-2005 tax years and received a refund.  The IRS disallowed the depreciation deduction on the basis that the petitioner had not put the buildings in service and assessed a deficiency of over $2.1 million for tax years 2003-2008.  The petitioner paid the deficiency and sued for a refund.  The IRS argued that allowing the depreciation would offend the "matching principle" because the petitioner's revenue from the buildings would not match the depreciation deductions for a particular tax year.  The court held that this argument was "totally without merit."  As to the government's "placed in service" argument, the court noted that Treas. Reg. Sec. 1.167(a)-11(e)(1) says that placed in service means that the asset is in a condition of readiness and availability for its assigned function.  With respect to a building, the court noted that this meant that the building must be in a state of readiness and availability without regard to whether equipment or machinery housed in the building has been placed in service.  The court held that there was no requirement that the petitioner's business must have begun by year-end.  Cases that the IRS cited involving equipment (in one case an airplane) being placed in service were not applicable, the court determined.  The court also noted that the IRS's own Audit Technique Guide for Rehabilitation Tax Credits stated that "[A] 'Certificate of Occupancy' is one means of verifying the 'Placed in Service' date for the entire building (or part thereof)".  The court noted that the IRS had failed to cite even a single authority for the proposition that "placed in service" means "open for business,"  and that during oral arguments admitted that no authority existed.  The court granted summary judgment for the petitioner and noted that the petitioner could pursue attorney fees if desired.  Stine, LLC v. United States, No. 2:13-03224, 2015 U.S. Dist. LEXIS 9850 (W.D. La. Jan. 27, 2015).