SECTION 4. DEFINITIONS — Internal Revenue Bulletin 2015-49

The following definitions apply solely for the purposes of this revenue procedure:

.01 Qualified taxpayer means a taxpayer that has an Applicable Financial Statement, as defined in section 4.08, and that—

(1) Is in the trade or business of selling merchandise to customers at retail, for which the taxpayer reports or conducts activities within NAICS codes 44 or 45, except those taxpayers that primarily report or conduct activities within the following codes:

(a) Code 4411 (automotive dealers); (b) Code 4412 (other motor vehicle dealers);

(e) Code 454 (nonstore retailers); or (2) Is in the trade or business of preparing and selling meals, snacks, or beverages to customer order for immediate on-premises and/or off-premises consumption, for which the taxpayer reports or conducts activities within NAICS code 722 except: (a) Those taxpayers that are primarily in the trade or business of operating hotels and motels; civic or social organizations; or amusement parks, theaters, casinos, country clubs, or similar recreation facilities; and

(b) Those taxpayers that primarily report or conduct activities within code 7223 (special food services, i.e., food service contractors, caterers, and mobile food services); or

(3) Owns, or leases, a qualified building as defined under section 4.02 that is leased, or sublet, to a taxpayer that meets the requirements of section 4.01(1) or (2) and incurs remodel-refresh costs as defined under section 4.04 .

.02 Qualified building means each building unit of property used by a qualified taxpayer primarily for selling merchandise to customers at retail or primarily for preparing and selling food or beverages to customer order for immediate on-premises and/or off-premises consumption. For these purposes, selling merchandise to customers at retail includes the sale of identical goods to resellers if

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the sales to resellers are conducted in the same building and in the same manner as retail sales to non-reseller customers (for example, warehouse clubs, home improvement stores). For purposes of this revenue procedure, a building unit of property is comprised of each building, as defined in § 1.48–1(e)(1), and its structural components, as defined in § 1.48– 1(e)(2), modified by the following, as applicable:

(1) Condominium . In the case of an individual unit in a building with multiple units (such as a condominium), the building unit of property is each individual unit owned by the qualified taxpayer and the structural components that are part of the unit.

(2) Cooperative . In the case of an interest in a cooperative housing corporation, the building unit of property is the portion of the building in which the qualified taxpayer has possessory rights and the structural components that are part of the portion of the building subject to the qualified taxpayer’s possessory rights.

(3) Leased building . In the case of a lease of an entire building to a qualified taxpayer, the building unit of property is the building and its structural components subject to the lease. In the case of a lease of a portion of a building (such as a store, a floor, or certain square footage) to a qualified taxpayer, the building unit of property is the portion of the building and the associated structural components subject to the lease.

.03 Remodel-refresh project . (1) In general . A remodel-refresh proj- ect means a planned undertaking by a qualified taxpayer on a qualified building to alter its physical appearance and/or layout for one or more of the following purposes:

(a) To maintain a contemporary and attractive appearance;

(b) To more efficiently locate retail or restaurant functions and products;

(d) To standardize the consumer experience if a qualified taxpayer operates more than one qualified building;

(e) To offer the most relevant and popular goods within the industry; or

(f) To address changes in demographics by changing product or service offerings and their presentations.

(2) Exception . A remodel-refresh project does not include a planned undertaking solely to repaint or to clean the interior or exterior of an existing qualified building.

.04 Remodel-refresh costs mean amounts paid by a qualified taxpayer for remodel, refresh, repair, maintenance, or similar activities performed on a qualified building as part of a remodel-refresh project. See section 4.06 for excluded amounts. For purposes of the remodelrefresh safe harbor method of accounting provided in section 5, remodel-refresh costs are not treated as paid or incurred (“paid”), and therefore are not taken into account, until the taxable year when the capital expenditure portion under the safe harbor, as determined under section 5.02(1), is placed in service within the meaning of § 1.46–3(d)(1)(ii). However, if the qualified building is sold or otherwise disposed of before the capital expenditure portion is placed in service, then the remodel-refresh costs are treated as paid in the taxable year such building is sold or otherwise disposed of. For purposes of this revenue procedure, an amount paid does not include an amount reimbursed to the qualified taxpayer, such as a lessee construction allowance.

.05 Remodel, refresh, repair, mainte- nance, or similar activities include, but are not limited to, the following activities:

(1) Painting, polishing, or finishing interior walls;

(2) Adding, replacing, repairing, maintaining, or relocating permanent floor, ceiling, or wall coverings, including millwork;

(3) Adding, replacing, repairing, maintaining, or relocating kitchen fixtures;

(4) Adding, replacing, or modifying signage or fixtures;

(5) Relocating departments, eating areas, check-out areas, kitchen areas, beverage areas, management space, storage space, or similar areas, within the existing footprint of the qualified building;

(6) Increasing or decreasing the square footage of departments, eating areas, check-out areas, kitchen areas, beverage areas, management space, storage space,

or similar areas within the existing footprint of the qualified building;

(7) Adding, relocating, or removing a room or rooms (for example, dressing rooms, “private” dining space, front office space, or break rooms) within the existing footprint of the qualified building;

(8) Moving, constructing, or altering walls within the existing footprint of the qualified building;

(9) Adding, relocating, removing, replacing, or re-lamping lighting fixtures, or adding reflectors, mirrors, or other similar devices to existing lighting fixtures;

(10) Repairing, maintaining, retrofitting, relocating, adding, or replacing building systems defined in § 1.263(a)– 3(e)(2)(ii)(B) within the existing footprint of the qualified building;

(11) Making non-structural changes to exterior facades;

(12) Relocating, replacing, or adding windows or doors (including replacing a manual door with an automatic door) within the existing footprint of the qualified building;

(13) Repairing, maintaining, or replacing the roof or portion of the roof within the existing footprint of the qualified building;

(14) Replacing façade materials around windows and entrances;

(15) Repair and maintenance to the qualified building that directly benefits or is incurred by reason of a remodel-refresh project;

(16) Removal and demolition, other than demolition subject to § 280B, of structural components of a qualified building (for example, insulation, windows, drywall, and similar property) that directly benefit or are incurred by reason of a remodel-refresh project;

(17) Obtaining permits or other similar authorizations that directly benefit or are incurred by reason of a remodel-refresh project; and

(18) Architectural, engineering, and similar services that directly benefit or are incurred by reason of a remodel-refresh project.

.06 Excluded remodel-refresh costs mean amounts paid during a remodelrefresh project for—

(1) Section 1245 property (as defined in § 1245(a)(3));

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(2) An intangible under § 1.263(a)– 4(b), including the creation or maintenance of computer software;

(3) Land, including nondepreciable land improvements, or depreciable land improvements described in Asset Class 00.3 of Rev. Proc. 87–56, 1987–2 C.B. 674 (for example, sidewalks, parking lots, depreciable landscaping);

(4) The initial acquisition, production, or lease of a qualified building, including purchase price, construction costs, transaction costs, and the costs of work performed prior to the date that the qualified building is initially placed in service by the qualified taxpayer;

(5) The initial build-out of a leased qualified building, or a portion thereof, for a new lessee;

(6) Activities to rebrand a qualified building performed within two taxable years following the closing date of (1) an acquisition or initial lease of the qualified building by the qualified taxpayer or a person related, within the meaning of § 267(b) or § 707(b), to the qualified taxpayer or (2) the acquisition by the qualified taxpayer or a person related, within the meaning of § 267(b) or § 707(b), to the qualified taxpayer of a controlling interest in the qualified building or in a lease of the qualified building;

(7) Activities performed to ameliorate a material condition or defect that existed prior to the qualified taxpayer’s acquisition or lease of the qualified building or that arose during the production of the qualified building (generally, an unusual event in the retail or restaurant business), regardless of whether the qualified taxpayer was aware of the condition or defect at the time of acquisition or production;

(8) Material additions to a qualified building, including the building systems defined in § 1.263(a)–3(e)(2)(ii)(B). Solely for purposes of this revenue procedure, additions mean enlarging, expanding, or extending the square footage of the qualified building, or enlarging, expanding, or extending the building systems in conjunction with enlarging, expanding, or extending the square footage of the qualified building.

(9) Restoration caused by damage to the qualified building for which the qualified taxpayer is required to take a basis adjustment as a result of a casualty loss

under § 165, or relating to a casualty event described in § 165, subject to the limitation in § 1.263(a)–3(k)(4);

(10) Adapting more than twenty percent (20%) of the total square footage of a qualified building to new or different use or uses, as described in § 1.263(a)–3(l), as part of a remodel-refresh project. For this purpose, square footage is measured based on the total square footage of the qualified building prior to the remodel-refresh project at issue.

(11) Remodel-refresh costs incurred during a temporary closing. A temporary closing is closing the qualified building during normal business hours for more than 21 consecutive calendar days.

(12) The cost of any property for which the qualified taxpayer has claimed a deduction under § 179, § 179D, or § 190.

.07 Qualified costs are the qualified taxpayer’s remodel-refresh costs less the qualified taxpayer’s excluded remodelrefresh costs. For documentation requirements for the qualified costs, see section 5.02(2). .08 Applicable Financial Statement means an applicable financial statement defined under § 1.263(a)–1(f)(4). If the qualified taxpayer’s financial results are reported on an applicable financial statement defined under § 1.263(a)–1(f)(4) for a group of entities, then for purposes of this revenue procedure and the application of the remodel-refresh safe harbor provided in section 5, the group’s applicable financial statement is the applicable financial statement of the qualified taxpayer.