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McManus v. United States

decided: November 22, 1988.


Appeal from the United States District Court for the Western District of Wisconsin. No. 86-C-887 - Barbara B. Crabb, Judge.

Bauer, Chief Judge, Manion, Circuit Judge, and Will, Senior District Judge.*fn*

Author: Will

WILL, Senior District Judge.

This is an appeal from the district court's order granting the defendant's motion for summary judgment against the plaintiff's action to recover income taxes and an interest penalty. We affirm.


Jack McManus ("taxpayer") brought this action, under 28 U.S.C. § 1356(a)(1), seeking a refund of federal income taxes and interest penalty paid by him and his now deceased spouse for the years 1981-84. They claimed an investment tax credit ("ITC") and calculated five-year (accelerated) depreciation for a ten-unit airplane hangar they purchased in 1981 for $165,000. Following an audit, the IRS disallowed the ITC and determined that the hangar was subject to fifteen-year depreciation. McManus and his wife paid $40,516 in taxes owed plus $20,024 in interest.

The ten-unit airplane hangar is located at the Dane County Regional Airport (Truax Field) in Madison, Wisconsin, where it was assembled in less than two weeks. It was not a prefabricated structure. The taxpayer leased land for the hangar under a thirty-year lease requiring that the hangar only be used to store aircraft. Airport regulations also restrict hangars to this use. The hangar has an expected useful life of at least twenty years.

The taxpayer in turn leased the hangar to Frickelton Aviation which then rented units to individual airplane owners for their personal use. Frickelton Aviation operates out of the Dane County Regional Airport and, among other things, sells gas to airplane owners, repairs and inspects airplanes and gives flying instruction. The taxpayer did not keep his own airplane in the hangar. He is an attorney, part-time farmer and also owns a private airstrip in Oregon, Wisconsin. Owning and leasing the hangar is a totally independent business of the taxpayer.

The structure, which is rectangular, consists of a steel frame bolted in forty to sixty places to concrete footings or "piers" poured into the ground. It is also supported by turnbuckles, girders, trusses, tie bars and braces. The sides and roof are made of steel sheets which are bolted to the piers. There are ten separate concrete and asphalt floors, one for each of the ten hangar units, each three inches thick and covering less floor space than the entire floor area. There is dirt between the floors and the concrete piers.

There is no "rear wall" for each unit in the ordinary sense because five adjacent hangars abut the other five adjacent hangars with partitions between them. The partitions are bolted to the structure and can be removed. The individual units could be spread out in a line but are in fact situated adjacent to each other in order to save space and other costs, e.g., steel sheets, hardware, land and concrete piers. Each hangar unit occupies an area which is seventeen feet deep and forty feet wide and the entire hangar is thirty-four feet by two hundred feet.

A dispute arose during oral argument as to the number and nature of the partitions. The taxpayer's counsel claimed that where two units abut there are double walls, i.e., two partitions. He did not discuss the height of the partitions. The government responded that units which abut are separated by one partition which does not extend to the roof of the structure itself. According to the government, one could climb to the top of a partition and view the adjacent hangar. As discussed below, we do not consider this to be a material fact. It is undisputed that at each end of the structure there are thirty-four foot outside walls which extend to the height of the entire structure while the inside six units have partitions separating them. One roof covers the entire structure.

Each unit has a forty-foot folding door for aircraft access that can be purchased separately. Conventional manually operated doors for persons to enter and exit are incorporated into the larger airplane access doors. The hangars have no plumbing, heating, insulation, ventilation or windows. The electric system consists of a single lightbulb and a motor to open and shut the airplane access door. Each unit is designed to house one single-engine aircraft.

The hangar could be moved to another location. Duane Millard, a building contractor involved in the hangar's original assembly, stated that four men could disassemble the units and load them on a truck for a cost of $1,400 to $1,600. He said that a four-person crew would take two days to remove the ten forty-foot doors and five days to disassemble the remainder of the hangar. If the structure were moved a short distance, e.g., to another location at the same airport, it could be placed on a flatbed trailer or wheels and relocated without complete disassembly. Reassembling the structure would require less time than the original assembly. There was no evidence suggesting that the hangar had been moved since its original assembly.

The taxpayer notes in his reply brief that these time estimates are based on removal of the entire ten-unit structure. It would take less than one day to remove one unit and, according to him, it is proper to analyze the tax issue in terms of a single unit. However, moving one or all ten hangar units would require construction of new cement piers with steel bolts and other support pieces, in addition to paving new floors. The old cement piers and bolts would also remain, unless removed. The government claims that, in any event, the hangar should be viewed as a whole. The district court analyzed this case in terms of one ten-unit structure. We agree.


The taxpayer must prove that he is entitled to the ITC. Illinois Cereal Mills, Inc. v. Comm'r of Internal Revenue, 789 F.2d 1234, 1239 (7th Cir. 1986), cert. denied, 479 U.S. 995, 107 S. Ct. 600, 93 L. Ed. 2d 600. Property eligible for an ITC is called section 38 property, defined in relevant part by 26 U.S.C. § 48 ("section 48")*fn1

(a) Section 38 property --

(1) In general. -- Except as provided in this subsection, the term "section 38 property" means --

(A) tangible personal property (other than an air conditioning or heating unit), or

(B) other tangible property (not including a building and its structural components) but only if such property --

(i) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services . . . .

The district court concluded that, as a matter of law, the hangar is not "tangible personal property" or "other tangible property" but a building for which no ITC is available. In addition, the district court found that the doors and partitions are structural ...

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