Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 168.—Accelerated Cost Recovery System

Retail motor fuels outlet. A retail motor fuels outlet is 15-year property for depreciation purposes whether or not the taxpayer-owner is the operator of the motor fuels business.

Rev. Rul. 97–29

ISSUE

If a taxpayer is the owner, but not the operator, of a retail motor fuels outlet, is the outlet 15-year property for depreciation purposes under § 168(e)(3)(E) of the Internal Revenue Code?

FACTS

A retail motor fuels outlet may be owned by one entity and operated by another entity. Often, the owner of the property leases the property to an operator. In addition, businesses other than the motor fuels business may operate in the same building. For example, an outlet building may contain a restaurant or video arcade. These businesses may be owned and operated by different taxpayers that make payments to the owner of the outlet building or to a sublessor.

LAW AND ANALYSIS

Section 1120 of the Small Business Job Protection Act of 1996, Pub. L. No. 104–188, 110 Stat. 1755 (1996) (the Act), amended § 168(e)(3)(E) to provide that 15-year property includes any § 1250 property that is a retail motor fuels outlet whether or not food or other convenience items are sold at the outlet. The legislative history of the Act provides that property will qualify as a

retail motor fuels outlet if 50 percent or more of the gross revenues generated from the property are derived from petroleum sales, or 50 percent or more of the floor space in the property is devoted to petroleum marketing sales. A motor fuels outlet of 1400 square feet or less qualifies as a retail motor fuels outlet under the Act without application of either 50 percent test. S. Rep. No. 281, 104th Cong., 2d Sess. 14–16 (1996).

Section 168(e)(3)(E) provides that any § 1250 property that qualifies as a retail motor fuels outlet is 15-year property. There is no distinction between an owner of a retail motor fuels outlet that also operates the motor fuels business and an owner that does not operate the motor fuels business. Accordingly, § 1250 property the use of which meets the definition of a retail motor fuels outlet is treated as 15-year property for depreciation purposes whether or not the owner is the operator. In applying the 50-percent gross revenues test to determine if the property qualifies as a retail motor fuels outlet, the owner of an outlet building must aggregate the gross revenues of all businesses operated in the outlet building whether or not such businesses are operated by the owner.

HOLDING

A retail motor fuels outlet is 15-year property for depreciation purposes under § 168(e)(3)(E) whether or not the taxpayer-owner is the operator of the motor fuels business.

DRAFTING INFORMATION

The principal author of this revenue ruling is Mark Pitzer of the office of Assistant Chief Counsel (Passthroughs

and Special Industries). For further information regarding this revenue ruling, contact Mark Pitzer at (202) 622–3110 (not a toll-free call).

Section 472.—Last-in, First-out Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department stores. The May 1997 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, May 31, 1997.

Rev. Rul. 97–28

The following Department Store Inventory Price Indexes for May 1997 were issued by the Bureau of Labor Statistics on June 17, 1997. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to, May 31, 1997.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups—soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, foods, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups May 1996 May 1997

Percent Change from May 1996 to

May 1997 ¹

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545.1 529.2 �2.9
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . 649.3 649.3 0.0
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . 659.7 663.7 0.6
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 906.5 918.8 1.4
5. Infants’ Wear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631.2 642.0 1.7
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534.1 537.7 0.7
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286.8 296.7 3.5
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . 550.8 566.2 2.8

July 14, 1997 4 1997–28 I.R.B.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE—Continued

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups May 1996 May 1997

Percent Change from May 1996 to

May 1997 ¹

9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . 417.9 435.1 4.1
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626.1 630.2 0.7
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593.3 601.9 1.4
12. Boys’ Clothing and Furnishings. . . . . . . . . . . . . . . . . . . . . 493.3 500.2 1.4
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1020.1 1004.9 �1.5
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773.8 755.8 �2.3
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . 883.8 907.2 2.6
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668.0 673.4 0.8
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576.1 592.7 2.9
18. Housewares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803.9 806.3 0.3
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245.1 242.0 �1.3
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.2 76.7 �3.2
21. Recreation and Education ² . . . . . . . . . . . . . . . . . . . . . . . . . 112.8 109.8 �2.7
22. Home Improvements ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127.2 132.4 4.1
23. Auto Accessories ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.4 107.2 �0.2

Groups 1 - 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603.0 612.3 1.5 Groups 16 - 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . 467.6 465.4 �0.5 Groups 21 - 23: Misc. Goods ² . . . . . . . . . . . . . . . . . . . . . . . . . . 113.7 112.2 �1.3

Store Total ³ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556.3 560.7 0.8

1 Absence of a minus sign before percentage change in this column signifies price increase. 2 Indexes on a January 1986 = 100 base. 3 The store total index covers all departments, including some not listed separately, except for the following: candy, foods, liquor, tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue ruling is Stan Michaels of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Michaels on (202) 622–4970 (not a toll-free call).

Section 894.—Income Affected By Treaty

For periods on or after July 1, 1997, when China resumes the exercise of sovereignty over Hong Kong, the Internal Revenue Service will continue to treat Hong Kong and China as two separate countries for purposes of certain bilateral agreements and the Internal Revenue Code and Income Tax Regulations. See Notice 97–40, page 6.

Section 3221.—Rate of Tax

Determination of Quarterly Rate of Excise Tax for Railroad Retirement Supplemental Annuity Program

In accordance with directions in section 3221(c) of the Railroad Retirement Tax Act (26 U.S.C., section 3221(c)), the Railroad Retirement Board has determined that the excise tax imposed by such Section 3221(c) on every employer, with respect to having individuals in his employ, for each work-hour for which compensation is paid by such employer for services rendered to him during the quarter beginning July 1, 1997, shall be at the rate of 35 cents.

In accordance with directions in Section 15(a) of the Railroad Retirement Act of 1974, the Railroad Retirement Board has determined that for the quar

ter beginning July 1, 1997, 31.0 percent of the taxes collected under Sections 3211(b) and 3221(c) of the Railroad Retirement Tax Act shall be credited to the Railroad Retirement Account and 69.0 percent of the taxes collected under such Sections 3211(b) and 3221(c) plus 100 percent of the taxes collected under Section 3221(d) of the Railroad Retirement Tax Act shall be credited to the Railroad Retirement Supplemental Account.

By Authority of the Board. Dated May 28, 1997.

Beatrice Ezerski, Secretary to the Board.

(Filed by the Office of the Federal Register on June 4, 1997, 8:45 a.m., and published in the issue of the Federal Register for June 5, 1997, 62 F.R. 30901)

1997–28 I.R.B. 5 July 14, 1997