Part I. Rulings — Internal Revenue Bulletin 2003-23

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 167.—Depreciation

26 CFR 1.167(a)–2: Tangible 1245 property. (Also §§ 168, 1245, 1250, 1.1245–3.)

Depreciation; gasoline pump cano- pies. This ruling determines the classification of typical “stand-alone” gasoline pump canopies and their supporting concrete footings for depreciation purposes by applying criteria set forth in Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664 (1975). This ruling holds that the canopies are not inherently permanent structures and are classified as tangible personal property includible in asset class 57.0 of Rev. Proc. 87–56 for depreciation purposes. This ruling also holds that the supporting concrete footings are inherently permanent structures classified as land improvements includible in asset class 57.1 of Rev. Proc. 87–56 for depreciation purposes. Rev. Rul. 68– 345 obsoleted. Rev. Proc. 2002–9 modified and amplified.

Rev. Rul. 2003–54

ISSUE

How are gasoline pump canopies and their supporting concrete footings classified for depreciation purposes?

FACTS

Most retail motor fuel outlets feature gasoline pump canopies. These canopies protect customers and the gasoline pumps from weather conditions and also serve as advertising displays for the fuel outlet business. Generally, the canopies are not attached to buildings or other structures. The typical “stand-alone” gasoline pump canopies in use today are constructed in the manner described below.

Concrete footings are constructed by local contractors to specifications provided by a canopy manufacturer. Concrete is poured around a cage of rebar embedded in the ground at the fuel outlet site. Anchor bolts

protrude from the footings. Footings are constructed for each vertical support column of the canopy. Each support column has a welded plate on the base with holes designed for the anchor bolts. Each column is bolted onto a footing, usually 1 to 2 feet below grade. Nuts on the anchor bolts are used for leveling the column. Electrical and fluid conduits are constructed in and around the columns. Earth or other material is graded over the footing. A concrete cap, 1 to 2 inches thick, may be poured over the footing.

The support columns also have welded plates at the top. Main support beams are laid parallel to each other across two column sets and bolted to each column’s plate. For canopies with single row column designs, the main beams are bolted to each column. Secondary beams are bolted at right angles to the main support beams. Purlins are bolted across the secondary beams to support the decking. A steel outrigger frame is bolted along the perimeter of the structural steel skeleton to support the facia panels. Decking and facia panels, constructed of sheet metal and designed to be interlocking, are attached to the canopy structure by clamps.

Gasoline pump canopies constructed in the manner described above are sometimes dismantled and relocated for various reasons, including ground lease expiration or termination provisions, outlet expansions, and re-imaging. Because of the method of canopy construction, dismantling and removal can be accomplished by a small crew in a matter of hours or days. The dismantling process is the reverse of the construction process. Facia panels, light fixtures, and decking panels are removed and lowered to the ground. The steel support structure is disassembled by unbolting and removing the various components in sequence, starting with the outrigger framing, followed by the purlins, secondary beams, and main beams. The cement caps covering the concrete footings are broken and removed to expose the bases of the support columns. The columns are supported by heavy equipment while the base plates are unbolted from the footings and the columns removed. The footings remain embedded in the ground where they were poured.

The canopy structure and concrete footings sustain minimal damage during the dis

mantling and removal process. Most components of the canopy structure are reusable. The cost of dismantling, removing, and reinstalling a used canopy structure is significantly less than the cost of purchasing and installing a new canopy structure.

LAW AND ANALYSIS

Section 167(a) of the Internal Revenue Code provides that there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion and wear and tear of property used in a trade or business or held for the production of income.

The depreciation deduction provided by § 167(a) for tangible property placed in service after 1986 generally is determined under § 168, which prescribes two methods of accounting for determining depreciation allowances: (1) the general depreciation system in § 168(a); and (2) the alternative depreciation system in § 168(g). Under either depreciation system, the depreciation deduction is computed by using a prescribed depreciation method, recovery period, and convention.

The applicable recovery period for purposes of § 168(a) or § 168(g) is determined by reference to class life. Section 168(i)(1) provides that the term “class life” means the class life (if any) that would be applicable with respect to any property as of January 1, 1986, under former § 167(m) as if it were in effect and the taxpayer had elected under that section. Prior to its revocation, § 167(m) provided that if a taxpayer elected the asset depreciation range system of depreciation, the depreciation deduction would be computed based on the class life prescribed by the Secretary that reasonably reflected the anticipated useful life of that class of property to the industry or other group.

Section 1.167(a)–11(b)(4)(iii)( b ) of the Income Tax Regulations provides rules for classifying property under former § 167(m) and, under these rules, property is included in the asset guideline class for the activity in which the property is primarily used.

Rev. Proc. 87–56, 1987–2 C.B. 674, sets forth the class lives of property that are necessary to compute the depreciation allowance under § 168. This revenue procedure establishes two broad categories of depreciable assets: (1) asset classes 00.11 through

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vertising display should be treated as tangible personal property.

In JFM, Inc. and Subsidiaries v. Com- missioner, T.C.M. 1994–239, the Tax Court concluded, based on the application of the Whiteco criteria, that certain gasoline pump canopies were not inherently permanent structures for depreciation purposes. Stating that no one factor is necessarily decisive and that each, to some extent, is probative, the court found that the canopies were capable of being moved, noted that some had been moved, were subject to lease agreements that could require canopy removal, were constructed in such a way as to be easily dismantled in a few days with most components being reusable, and were affixed to the land by being bolted to concrete footings. The court noted that the concrete footings are residual structures that remain on the land after the canopy structure is unbolted.

The depreciation classification of the gasoline pump canopies and the supporting concrete footings described in this revenue ruling depends upon whether the canopies and footings are inherently permanent structures. This determination is made by application of the Whiteco criteria. As noted by the court in JFM, no one factor is decisive.

Application of the Whiteco factors to the stand-alone gasoline pump canopies described above indicates that these canopies are not inherently permanent structures. The canopies are capable of being moved and, on occasion, have been relocated to other fuel outlet sites. The canopies’ construction facilitates easy, cost effective removal in a short period of time and minimal damage is sustained by the canopies during the dismantling and removal process. In some factual settings ground lease provisions and re-imaging histories may provide additional indications of affixation length. With regard to the concrete footings, however, application of the Whiteco factors indicates that these footings are inherently permanent structures. The footings are not constructed in a manner that enables them to be removed with the canopy structure. If a canopy is moved the footings remain embedded in the ground. The footings are directly attached to the land and permanently affixed thereto.

HOLDING

The gasoline pump canopies described in this revenue ruling are not inherently per

00.4 that consist of specific assets used in all business activities; and (2) asset classes 01.1 through 80.0 that consist of assets used in specific business activities. The same item of depreciable property may be described in both an asset category (asset classes 00.11 through 00.4) and an activity category (asset classes 01.1 through 80.0), in which case the item is generally classified in the asset category. See Nor- west Corporation & Subsidiaries v. Com- missioner, 111 T.C. 105 (1998).

Asset class 57.0 of Rev. Proc. 87–56 includes assets used in wholesale and retail trade, personal and professional services, and section 1245 assets used in marketing petroleum and petroleum products. Assets in class 57.0 have a recovery period of 5 years for purposes of § 168(a) and 9 years for purposes of § 168(g). Asset class 57.1 includes (i) section 1250 assets, including service station buildings and (ii) depreciable land improvements, whether section 1245 property or section 1250 property, used in the marketing of petroleum and petroleum products, but not including any facilities related to petroleum and natural gas trunk pipelines. Assets in class 57.1 have a recovery period of 15 years for purposes of § 168(a) and 20 years for purposes of § 168(g). Accordingly, with the exception of assets included in the asset categories for specific assets used in all business activities (classes 00.11 through 00.4), all assets used in the business activity of petroleum marketing are included in asset class 57.0 or asset class 57.1. Gas station canopies and their supporting concrete footings are not listed among the assets described in asset classes 00.11 through 00.4.

Section 1245(a)(3) provides that section 1245 property includes any property that is of a character subject to the allowance for depreciation under § 167 and is either personal property or certain other property described within § 1245(a)(3)(B) through (F). Section 1.1245–3(b) provides that “personal property” includes tangible personal property as defined in § 1.48– 1(c) (relating to the definition of “section 38 property” for purposes of the investment tax credit) and intangible personal property. Section 1.48–1(c) provides that “tangible personal property” means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of

such buildings or structures). Therefore, section 1245 property used in petroleum marketing that is tangible personal property is included in asset class 57.0. Asset class 57.1 includes buildings used in petroleum marketing, which are section 1250 property, and other inherently permanent structures used in petroleum marketing, regardless of whether the structures are section 1245 property or section 1250 property.

The question of whether a particular structure is inherently permanent was initially addressed by the Service in the context of the investment tax credit provisions. Rev. Rul. 75–178, 1975–1 C.B. 9, provides that the classification of property as “personal” or “inherently permanent” should be made on the basis of the manner of attachment to the land or the structure and how permanently the property is designed to remain in place.

In Whiteco Industries, Inc. v. Commis- sioner, 65 T.C. 664 (1975), acq., 1980–1 C.B. 1, the Tax Court concluded that outdoor advertising displays were tangible personal property that qualified for the investment tax credit rather than inherently permanent structures. The court set forth the following questions to be considered in deciding whether property (other than items in the nature of machinery) is to be classified as tangible personal property: (1) Is the property capable of being moved, and has it in fact been moved? (2) Is the property designed or constructed to remain permanently in place? (3) Are there circumstances that tend to show the expected or intended length of affixation, that is, are there circumstances that show the property may or will have to be moved? (4) How substantial a job is removal of the property, and how time-consuming is it? (5) How much damage will the property sustain upon its removal? (6) What is the manner of affixation of the property to the land?

In Rev. Rul. 80–151, 1980–1 C.B. 7, the Service announced that it would apply the criteria set forth by the court in Whiteco in determining whether outdoor advertising displays are tangible personal property. The revenue ruling also provides that outdoor advertising displays will not be categorically treated as being either tangible personal property or inherently permanent structures. Rather, the Whiteco criteria will be applied on a case-by-case basis to determine whether a particular outdoor ad

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their supporting concrete footings for depreciation purposes and provides the applicable recovery periods for the gasoline pumps canopies and their footings under section 168 of the Internal Revenue Code. See Rev. Rul. 2003–54, page 982.

Section 263A.—Capitalization and Inclusion in Inventory Costs of Certain Expenses

Proposed regulations under section 448 of the Code provide rules under which any adjustment under section 481(a) resulting from a change in method of accounting under the regulations will be taken into account over the same number of taxable years that is provided in general guidance. See REG–142605–02, page 1010.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted applicable federal long-term rate is set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 448.—Limitation on Use of Cash Method of Accounting

26 CFR 1.448–1: Limitation on the use of the cash receipts and disbursements method of accounting.

manent structures and are classified as tangible personal property includible in asset class 57.0 of Rev. Proc. 87–56 for depreciation purposes. The supporting concrete footings are inherently permanent structures classified as land improvements includible in asset class 57.1 of Rev. Proc. 87–56 for depreciation purposes.

CHANGE IN METHOD OF ACCOUNTING

Any change in a taxpayer’s treatment of the cost of gasoline pump canopies or the cost of the supporting concrete footings to conform with this revenue ruling is a change in method of accounting to which the provisions of §§ 446 and 481 and the regulations thereunder apply.

A taxpayer wanting to change the method of accounting for the cost of gasoline pump canopies or supporting concrete footings owned by the taxpayer at the beginning of the year of change (and for which the taxpayer has used another method of computing depreciation in at least two taxable years immediately preceding the year of change) to conform with this revenue ruling must follow the automatic change in method of accounting provisions in Rev. Proc. 2002–9, 2002–1 C.B. 327 (as modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, modified and clarified by Announcement 2002– 17, 2002–1 C.B. 561, and amplified, clarified, and modified by Rev. Proc. 2002– 54, 2002–35 I.R.B. 432) (or its successor), with the following modifications:

(1) The scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply to a taxpayer that wants to change its method of accounting for the cost of gasoline pump canopies or supporting concrete footings to conform with this revenue ruling for either its first or second taxable year ending after December 31, 2001, provided the taxpayer’s method of accounting for the cost of gasoline pump canopies or supporting concrete footings is not an issue under consideration, within the meaning of section 3.09 of Rev. Proc. 2002–9, for taxable years under examination, before an appeals office, or before a federal court at the time the Form 3115 is filed with the national office; and

(2) To assist the Internal Revenue Service in processing changes in method of accounting under this revenue ruling, and to ensure proper handling, section 6.02(4)(a)

of Rev. Proc. 2002–9 is modified to require that a Form 3115 filed under this revenue ruling include the statement “Automatic Change Filed Under Rev. Rul. 2003–54.” This statement should be legibly printed or typed on the appropriate line on the Form 3115.

AUDIT PROTECTION

If a taxpayer is currently treating the cost of gasoline pump canopies or supporting concrete footings in conformance with this revenue ruling, the treatment of such canopies or footings will not be raised as an issue by the Service in a taxable year that ends before May 8, 2003, or any subsequent taxable year. Additionally, if a taxpayer is currently treating the cost of gasoline pump canopies or supporting concrete footings in conformance with this revenue ruling, and its use of that method is an issue under consideration (within the meaning of section 3.09 of Rev. Proc. 2002–9) in examination, in appeals, or before the U.S. Tax Court in a taxable year that ends before May 8, 2003, that issue will not be further pursued by the Service.

A taxpayer may continue to use its present method of treating the cost of gasoline pump canopies placed in service during any taxable year beginning before May 8, 2003, as land improvements includible in asset class 57.1 of Rev. Proc. 87–56 for depreciation purposes.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 68–345, 1968–2 C.B. 30, is obsoleted. Rev. Proc. 2002–9 is modified and amplified to include this change in method of accounting in section 2 of the APPENDIX.

DRAFTING INFORMATION

The principal author of this revenue ruling is Winston H. Douglas of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. Douglas at (202) 622–3110 (not a toll-free call).

Section 168.—Accelerated Cost Recovery System

This ruling determines the classification of typical “stand-alone” gasoline pumps canopies and

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Rev. Rul. 2003–56

ISSUE

If a partnership enters into an exchange that qualifies as a deferred like kind exchange under § 1031 of the Internal Revenue Code in which property subject to a liability is transferred in one taxable year of the partnership and property subject to a liability is received in the following taxable year of the partnership, are the liabilities netted for purposes of § 752, and if so, when is any net change in a partner’s share of partnership liability taken into account?

FACTS

Situation 1 . P is a general partnership with two equal partners that reports on the calendar year. P owns Property 1, which has a fair market value of $300 x and is subject to a liability of $100 x . P has an adjusted basis of $80 x in Property 1. P enters into an agreement for a deferred like kind exchange of properties that qualifies under § 1031(a)(1). Pursuant to the agreement, P transfers Property 1 on October 16, Year 1, subject to the liability. On January 17, Year 2, P receives Property 2, which has a fair market value of $260 x, subject to a liability of $60 x . Thus, P has a net decrease in liability of $40 x .

Situation 2 . Situation 2 is the same as Situation 1 except that Property 2 has a fair market value of $340 x and is subject to a liability of $140 x . Thus, P has a net increase in liability of $40 x .

LAW

Section 752(a) provides that any increase in a partner’s share of the liabilities of a partnership, or any increase in a partner’s individual liabilities by reason of the assumption by the partner of partnership liabilities, shall be considered as a contribution of money by the partner to the partnership.

Section 752(b) provides that any decrease in a partner’s share of the liabilities of a partnership, or any decrease in a partner’s individual liabilities by reason of the assumption by the partnership of the individual liabilities, shall be considered as a distribution of money to the partner by the partnership.

Section 1031(a)(1) provides that no gain or loss is recognized on the exchange of property held for productive use in a trade

See REG–142605–02, page 1010.

Section 467.—Certain Payments for the Use of Property or Services

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 481.—Adjustments Required by Changes in Method of Accounting

Proposed regulations under sections 263A and 448 of the Code provide rules under which any adjustment under section 481(a) resulting from a change in method of accounting under the regulations will be taken into account over the same number of taxable years that is provided in general guidance. See REG–142605–02, page 1010.

Section 482.—Allocation of Income and Deductions Among Taxpayers

Federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 483.—Interest on Certain Deferred Payments

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 704.—Partner’s Distributive Share

26 CFR 1.704–2: Allocations attributable to nonrecourse liabilities.

If a partnership enters into an exchange that qualifies as a deferred like kind exchange under section 1031 of the Internal Revenue Code in which property subject to a liability is transferred in one taxable year of the partnership and property subject to a liability is received in the following taxable year of the partnership, and the relinquished liability and the replacement liability are nonrecourse liabilities, then under section 1.704–2(d), is the partnership minimum gain on the last day of the first taxable year of the partnership computed by using the replacement property and the replacement nonrecourse liability? See Rev. Rul. 2003–56 on this page.

Section 731.—Extent of Recognition of Gain or Loss on Distribution

26 CFR 1.731–1: Extent of recognition of gain or loss on distribution.

If a partnership enters into an exchange that qualifies as a deferred like kind exchange under section 1031 of the Internal Revenue Code in which property subject to a liability is transferred in one taxable year of the partnership and property subject to a liability is received in the following taxable year of the partnership, and the liabilities netted for purposes of section 752, and if so, when is any net change in a partner’s share of partnership liability taken into account? See Rev. Rul. 2003–56 on this page.

Section 752.—Treatment of Certain Liabilities

26 CFR 1.752–1: Treatment of certain liabilities. (Also §§ 1031; 1.704–2, 1.731–1, 1.1031(b)–1, 1.1031(k)–1.)

Like kind exchanges. This ruling deals with the consequences under section 752 of the Code, and the minimum gain rules under section 1.704–2(d) of the regulations, of a section 1031 transaction that straddles two taxable years.

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amount of the replacement liability is treated as money or other property received in the first taxable year of the partnership, since the excess is attributable to the transfer of the relinquished property subject to the relinquished liability in that year. In addition, any gain resulting from the receipt of money or other property in the first taxable year of the partnership must be recognized and reported in that year.

The liability offsetting rule of § 1.1031(b)–1(c) also is taken into account for purposes of determining the amount of any decrease in a partner’s share of partnership liability under § 752(b), which is treated as a deemed distribution of money to the partner. Accordingly, if a partnership enters into a § 1031 exchange that straddles two taxable years of the partnership, each partner’s share of the relinquished liability is offset with each partner’s share of the replacement liability for purposes of determining any decrease in a partner’s share of partnership liability under § 752(b). Any net decrease is taken into account in the first taxable year of the partnership since it is attributable to the transfer of the relinquished property subject to the relinquished liability in that year.

Any deemed distribution of money to the partners under § 752(b) in the first taxable year of the partnership is treated as an advance or drawing of money to the extent of each partner’s distributive share of partnership income for that year. Rev. Rul. 94–4. For this purpose, any gain recognized by the partnership under § 1031(b) from the net decrease in liability resulting from the exchange is included in the partners’ distributive share of partnership income for the first taxable year of the partnership. An amount treated as an advance or drawing of money is taken into account by the partners at the end of that year.

In addition, if a partner’s share of the replacement liability exceeds the partner’s share of the relinquished liability, only the net increase in liability is taken into account for purposes of determining the increase in the partner’s share of partnership liability under § 752(a). The net increase is taken into account in the second taxable year of the partnership since it is attributable to the receipt of the replacement property subject to the replacement liability in that year.

Furthermore, if the relinquished liability and the replacement liability are non

or business or for investment if the property is exchanged solely for property of like kind that is to be held either for productive use in a trade or business or for investment.

Section 1031(a)(3) provides that any property received by a taxpayer will be treated as property which is not like kind property if (A) the property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (B) the property is received after the earlier of (i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (ii) the due date (including extensions) for the taxpayer’s federal income tax return for the taxable year in which the transfer of the relinquished property occurs.

Section 1031(b) provides that if an exchange would be within the provisions of § 1031(a) if it were not for the fact that the property received in exchange consists not only of property permitted by the provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of the money and the fair market value of the other property.

Section 1.1031(b)–1(c) of the Income Tax Regulations provides that consideration in the form of an assumption of liabilities (or a transfer subject to a liability) is to be treated as “other property or money” for the purposes of § 1031(b). Where, in an exchange described in § 1031(b), each party either assumes a liability of the other party or acquires property subject to a liability, then, in determining the amount of other property or money, consideration given in the form of an assumption of liabilities (or the receipt of property subject to a liability) is offset against consideration received in the form of an assumption of liability (or transfer subject to a liability).

Example (5) of § 1.1031(k)–1(j)(3), describes the following situation: B has an adjusted basis in real property X of $40,000. On May 17, 1991, B transfers real property X, which is encumbered by a mortgage of $30,000 and has a fair market value of $100,000, to C with C assuming the

$30,000 mortgage on real property X . On July 5, 1991, C transfers real property V, which is encumbered by a $20,000 mortgage and has a fair market value of $90,000, to B with B assuming the mortgage. The consideration received by B in the form of the liability assumed by C ($30,000) is offset by the consideration given by B in the form of the liability assumed by B ($20,000), and the net amount, $10,000, is treated as “money or other property.” Thus, B recognizes gain under § 1031(b) in the amount of $10,000.

Rev. Rul. 94–4, 1994–1 C.B. 196, holds that a deemed distribution of money under § 752(b) resulting from a decrease in a partner’s share of the liabilities of a partnership is treated as an advance or drawing of money under § 1.731–1(a)(1)(ii) to the extent of the partner’s distributive share of income for the partnership taxable year. An amount treated as an advance or drawing of money is taken into account at the end of the partnership taxable year.

Section 1.704–2(d)(1) provides that the amount of partnership minimum gain is determined by first computing for each partnership nonrecourse liability any gain the partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. For any partnership taxable year, the net increase or decrease in partnership minimum gain is determined by comparing the partnership minimum gain on the last day of the immediately preceding taxable year with the partnership minimum gain on the last day of the current taxable year.

ANALYSIS

If a partnership enters into a § 1031 exchange, consideration given in the form of the receipt of the replacement property subject to a liability (replacement liability) is offset against consideration received in the form of the transfer of the relinquished property subject to a liability (relinquished liability) in determining the amount of money or other property for purposes of § 1031(b) (hereinafter referred to simply as “money or other property”) received in the exchange that is used to calculate gain recognized under § 1031(b). Section 1.1031(b)– 1(c). If the exchange straddles two taxable years of the partnership, the amount of the relinquished liability that exceeds the

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taken into account? See Rev. Rul. 2003–56, page 985.

Section 1245.—Gain From Dispositions of Certain Depreciable Property

26 CFR 1.1245–3: Definition of section 1245 property.

This ruling classifies typical “stand-alone” gasoline pump canopies as tangible personal property includible in asset class 57.0 of Revenue Procedure 87–56 for depreciation purposes by determining that section 1245 property used in petroleum marketing that is tangible personal property, as listed in section 1.1245–3(b) of the Income Tax Regulations, is includible in the asset class 57.0. See Rev. Rul. 2003–54, page 982.

Section 1250.—Gain From Dispositions of Certain Depreciable Realty

This ruling classifies supporting concrete footings for typical “stand-alone” gasoline pump canopies as inherently permanent structures (that is, land improvements) includible in asset class 57.1 of Revenue Procedure 87–56 for depreciation purposes by determining that other inherently permanent structures used in petroleum marketing, regardless of whether the structures are section 1245 property or section 1250 property are includible in the asset class 57.1. See Rev. Rul. 2003–54, page 982.

Section 1274.—Determin- ation of Issue Price in the Case of Certain Debt Instruments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 1274, 1288, and other sections of the Code, tables set forth the rates for June 2003.

Rev. Rul. 2003–60

This revenue ruling provides various prescribed rates for federal income tax purposes for June 2003 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates

recourse liabilities, then under § 1.704– 2(d), the partnership minimum gain on the last day of the first taxable year of the partnership is computed by using the replacement property and the replacement nonrecourse liability.

In Situation 1, P ’s amount realized is $300 x (the fair market value of the replacement property ($260 x ), increased by the relinquished liability ($100 x ), and decreased by the replacement liability ($60 x )), and P ’s adjusted basis in the relinquished property is $80 x, resulting in a realized gain of $220 x . Under § 1031(b), P recognizes gain only to the extent of money or other property received in the exchange. The relinquished liability of $100 x is offset by the replacement liability of $60 x in determining the amount of money or other property that P is treated as receiving. Therefore, under § 1031(b), P is treated as receiving $40 x of money or other property and therefore recognizes a gain of $40 x in Year 1. That gain is allocated $20 x to each partner of P as part of each partner’s distributive share of P ’s Year 1 income. Furthermore, under § 752(b), each partner is treated as receiving a deemed distribution from the partnership of $20 x in Year 1. Under Rev. Rul. 94–4, each partner’s § 752(b) deemed distribution of $20 x is treated as an advance or drawing of money to the extent of each partner’s distributive share of P ’s income for Year 1.

In Situation 2, P ’s amount realized is $300 x (the fair market value of the replacement property ($340 x ), increased by the relinquished liability ($100 x ), and decreased by the replacement liability ($140 x )), and P ’s adjusted basis in the relinquished property is $80 x, resulting in a realized gain of $220 x . Under § 1031(b), P recognizes gain only to the extent of money or other property received in the exchange. The relinquished liability of $100 x is offset by the replacement liability of $140 x in determining the amount of money or other property that P is treated as receiving. Therefore, under § 1031(b), P is not treated as having received money or other property. Accordingly, P recognizes no gain in Year 1. Furthermore, under § 752(a), each partner is treated as having made a contribution to the partnership of $20 x in Year 2.

HOLDING

If a partnership enters into an exchange that qualifies as a deferred like kind exchange under § 1031 in which property sub

ject to a liability is transferred in one taxable year of the partnership and property subject to a liability is received in the following taxable year of the partnership, the liabilities are netted for purposes of § 752. Any net decrease in a partner’s share of partnership liability is taken into account for purposes of § 752(b) in the first taxable year of the partnership, and any net increase in a partner’s share of partnership liability is taken into account for purposes of § 752(a) in the second taxable year of the partnership.

DRAFTING INFORMATION

The principal author of this revenue ruling is Pietro Canestrelli of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For more information regarding this revenue ruling, contact Mr. Canestrelli at (202) 622–3060 (not a toll-free call).

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, on this page.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, on this page.

Section 1031.—Exchange of Property Held for Productive Use or Investment

26 CFR 1.1031(b)–1: Receipt of other property or money in tax-free exchange. 26 CFR 1.1031(k)–1: Treatment of deferred exchanges.

June 9, 2003 987 2003–23 I.R.B.

federal rate for determining the present value of annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

(AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the shortterm, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted fed

eral long-term rate and the long-term taxexempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the

REV. RUL. 2003–60 TABLE 1

Applicable Federal Rates (AFR) for June 2003

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-Term

AFR 1.49% 1.48% 1.48% 1.48% 110% AFR 1.64% 1.63% 1.63% 1.62% 120% AFR 1.79% 1.78% 1.78% 1.77% 130% AFR 1.93% 1.92% 1.92% 1.91%

Mid-Term

AFR 3.06% 3.04% 3.03% 3.02% 110% AFR 3.37% 3.34% 3.33% 3.32% 120% AFR 3.68% 3.65% 3.63% 3.62% 130% AFR 3.99% 3.95% 3.93% 3.92% 150% AFR 4.61% 4.56% 4.53% 4.52% 175% AFR 5.39% 5.32% 5.29% 5.26%

Long-Term

AFR 4.65% 4.60% 4.57% 4.56% 110% AFR 5.12% 5.06% 5.03% 5.01% 120% AFR 5.60% 5.52% 5.48% 5.46% 130% AFR 6.07% 5.98% 5.94% 5.91%

REV. RUL. 2003–60 TABLE 2

Adjusted AFR for June 2003

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted AFR 1.29% 1.29% 1.29% 1.29%

Mid-term adjusted AFR 2.61% 2.59% 2.58% 2.58%

Long-term adjusted AFR 4.35% 4.30% 4.28% 4.26%

2003–23 I.R.B. 988 June 9, 2003

REV. RUL. 2003–60 TABLE 3

Rates Under Section 382 for June 2003

Adjusted federal long-term rate for the current month 4.35%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.45%

REV. RUL. 2003–60 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for June 2003

Appropriate percentage for the 70% present value low-income housing credit 7.89%

Appropriate percentage for the 30% present value low-income housing credit 3.38%

REV. RUL. 2003–60 TABLE 5

Rate Under Section 7520 for June 2003

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 3.6%

Section 1288.—Treatment of Original Issue Discounts on Tax-Exempt Obligations

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 1361.—S Corporation Defined

Can a taxpayer get relief for late S corporation elections, Electing Small Business Trust (ESBT) elections, Qualified Subchapter S Trust (QSST) elections, and Qualified Subchapter S Subsidiary (QSub) elections if the request for relief is filed within 24 months of the due date of the election and other requirements are met? See Rev. Proc. 2003–43, page 998.

Section 1362.—Election; Revocation; Termination

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

Section 7872.—Treatment of Loans With Below-Market Interest Rates

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of June 2003. See Rev. Rul. 2003–60, page 987.

June 9, 2003 989 2003–23 I.R.B.