                         T.C. Memo. 2004-118



                       UNITED STATES TAX COURT



        PDV AMERICA, INC. AND SUBSIDIARIES, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

        PDV HOLDING, INC. AND SUBSIDIARIES, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 12124-02, 12125-02.     Filed May 12, 2004.


     Lisa M. Cipriano, Michael A. Clark, and Kevin R. Pryor, for

petitioners.

     C. Glenn McLoughlin, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:    Respondent determined deficiencies with

respect to petitioners’ income tax as follows:
                                - 2 -

Docket No. 12124-02

     Year         Deficiency

     1996          $119,774

Docket No. 12125-02

     Year         Deficiency

     1997          $218,170

Petitioners timely filed petitions contesting respondent’s

determinations.    Upon motion of the parties, these cases were

consolidated for purposes of trial, briefing, and opinion.

     After concessions,1 the issue for decision is whether

certain aboveground storage tanks located at petitioners’ refined

product terminals are included in Modified Asset Cost Recovery


     1
      Respondent conceded that the following aboveground storage
tanks are included in Modified Asset Cost Recovery System (MACRS)
Asset Guideline Class 57.0, Rev. Proc. 87-56, 1987-2 C.B. 674,
686:

     Terminal location                           Tank No.

     Albany, N.Y.                                   51
     Brownsville, Tex.                               5
     Milwaukee, Wis.                              8, 9
     Mt. Prospect, Ill.                         10, 11, 12
     Niceville, Fla.                                 3
     San Antonio, Tex.                    104, 105, 106, 107, 111
     Spartanburg, S.C.                               7
     Vestal, N.Y.                                    6

These tanks had shell capacities of 5,000 barrels or less,
heights of 35 feet or less, and diameters of 35 feet or less.

     In addition, the parties agree that the class lives for the
Pittsburgh, Pa., terminal’s tanks at issue will be the same as
the class life determined with respect to tank No. 1 at the
Chesapeake, Va., terminal.
                               - 3 -

System (MACRS) Asset Guideline Class 57.0 of Rev. Proc. 87-56,

1987-2 C.B. 674, 686, and treated as 5-year property under

section 168(e)(1),2 or are included in MACRS Asset Guideline

Class 57.1, and treated as 15-year property under section

168(e)(1).

                         FINDINGS OF FACT

      Some of the facts have been stipulated.   We incorporate the

stipulation of facts and the supplemental stipulation of facts

into our findings by this reference.

      PDV Holding, Inc., and PDV America, Inc., are Delaware

corporations.   PDV Holding, Inc., was created in 1997 as the new

common parent of the PDV America, Inc., affiliated group.

Accordingly, we shall refer to PDV Holding, Inc., and PDV

America, Inc., collectively as petitioner.

      Petitioner timely filed consolidated Forms 1120, U.S.

Corporation Income Tax Return, for the taxable years 1996 and

1997 on behalf of itself and its affiliated corporations.

Petitioner’s principal office was located in Tulsa, Oklahoma,

when it filed the petitions.

A.   CITGO’s Business

      Petitioner’s subsidiary, CITGO Petroleum Corp. (CITGO), a



      2
      All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure. Monetary amounts are
rounded to the nearest dollar.
                                - 4 -

Delaware corporation, operates the refined petroleum product

terminals at issue.   CITGO is the eighth largest crude oil

refiner in the United States, with ownership interests in four

United States gasoline and distillate refineries.    CITGO’s

refined products include gasoline, diesel fuel, kerosene, and jet

fuel.    CITGO is also a transporter and marketer of petroleum and

refined petroleum products.

     As a gasoline marketer, CITGO’s operation is the fourth

largest in the United States and includes gasoline products such

as regular unleaded, premium unleaded, and various special

formulations of gasoline for particular markets with

environmental emission restrictions.    CITGO sells its branded

gasoline through independently owned and operated branded

marketers and also sells unbranded gasoline to independent

distributors.

     In order to move its refined fuel products from the

refineries to the ultimate consumer, CITGO maintains an extensive

distribution system of pipelines and terminals.3    Terminals

provide temporary storage for gasoline and other refined products

received from nearby refined product pipelines and/or waterways4



     3
      CITGO Petroleum Corp. (CITGO) also uses this system to
distribute refined products on behalf of others in exchange for
transportation and storage fees.
     4
      Barges transport refined products across waterways to the
terminals.
                                 - 5 -

before CITGO distributes the products to other terminals, branded

retail outlets, or bulk customers.       CITGO has ownership interests

in 55 terminals.    During 1996 and 1997, except for two terminals

which CITGO operated under long-term ground leases, CITGO’s

terminals were located on land that CITGO held in fee simple.

B.   CITGO’s Aboveground Storage Tanks

      At its terminals, CITGO uses aboveground storage tanks

(tanks) for the storage, marketing, and distribution of petroleum

and petroleum products.    CITGO owns more than 500 tanks.    One

hundred and four of those tanks are at issue in this case and

vary in size from shell capacities of 7,000 to 194,000 barrels.5

The tanks at issue also range in height from 22 feet to 57 feet

and 2 inches and range in outside diameter from 40 feet to 170

feet.     Some tanks have been in existence for over 60 years.

      Typically, tanks are composed of a shell made of welded or

riveted steel plates, a steel floor,6 a fixed or floating roof,7

and accessories, such as ladders.    Other than internal roof and



      5
      Shell capacity refers to the internal volume of the
aboveground storage tank (tank) shell and is usually measured in
barrels.
      6
      The tank floor functions as a membrane to prevent the
petroleum product’s leaking from the tank base.
      7
      As a method for cutting down on vapor emission, some tanks
have internal floating roofs that float on top of the gasoline
and move up and down as gasoline is pumped into or out of the
tank. An open-top, floating-roof tank has no external roof
structure.
                                 - 6 -

rafter support columns, the tanks contain no internal

superstructure, and their external plating provides the sole

structural support.    The tank shell is thickest at the bottom and

gradually thins toward the top, which makes the center point of

the tank’s total weight lower than half the tank height.

       Due to the amount of steel in the tanks’ composition, the

tanks have considerable weight.    For example, a 55,900-barrel

tank has a dry weight of 394,000 pounds, and a 151,000-barrel

tank exceeds 1 million pounds.    Consequently, tanks usually are

not tied down to their foundations, and none of CITGO’s tanks

are.

       The purpose of tank foundations is to spread the tank’s

weight load to help avoid tank settlement and to keep moisture

and other corrosive elements from deteriorating the tank’s steel

structure.    Tank foundations may consist of compacted sand or

soil, concrete ringwalls, crushed stone ringwalls, or concrete

slabs.    For sand pad foundations, CITGO replaces the top 3 to 6

inches of the soil with sand or granular backfill.    Concrete

ringwalls are circular concrete walls from 12 to 18 inches thick

that line up with the tank’s outer edge.    The ringwall is mostly

beneath grade and is filled with sand or other material to permit

sufficient drainage.    Similarly, crushed stone ringwalls are

circular gravel rings filled with sand or other drainage

material.    Concrete slab foundations are more infrequently used
                                 - 7 -

and have a thickened edge or reinforced concrete piles on the

edge to help bear the weight of the tank.

C.   Tank Construction

      When a terminal requires the addition of new tanks,

management personnel at the terminal first prepare an

authorization for expenditure (AFE).     After approval of the AFE,

CITGO submits requests for bids from tank builders, reviews the

bids, and awards a contract.   CITGO’s contracts require that the

tank’s design and construction comply with the American Petroleum

Institute Standard 650, Welded Steel Tanks for Oil Storage (API

Standard 650).   The contractor then prepares drawings according

to the contract specifications and fabricates the various tank

components.

      Once the tank foundation is built, the contractor sets and

welds together the tank floor.    Then, the contractor welds the

steel plate tank shell rings from the floor up to the top ring.

At this point, the contractor installs any necessary roof support

columns, girders, or rafters and any internal mechanisms, such as

an internal floating roof.   Finally, after welding the roof

plating together, the contractor installs ladders or other

accessories and paints the tank.

      The cost of constructing a new tank is between $10 and $12

per barrel of capacity.   Tank construction crews usually consist

of 8 to 12 workers, who build the tank structure in 5 to 6 weeks.
                                - 8 -

A concrete ringwall foundation requires an additional 1 to 2

weeks of construction.

     During 1996 and 1997, CITGO placed in service the following

seven new tanks:   Tanks Nos. 500, 501, 502, and 505 at the

Linden-Tremley, New Jersey, terminal; tanks Nos. 3 and 6 at the

Braintree, Massachusetts, terminal; and tank No. 9 at the

Vicksburg, Mississippi, terminal.   The seven new tanks were built

on top of concrete ringwall foundations filled with sand.

     At the Linden-Tremley terminal, CITGO’s contractor, Pitt-Des

Moines, Inc., agreed to construct tanks Nos. 501 and 5028 for

$1,244,750.   CITGO hired Simpson and Brown, Inc., to construct

both foundations for $86,000.   The total amount CITGO expended to

construct tanks Nos. 501 and 502 was $1,884,623.9

     Pitt-Des Moines, Inc., also constructed tanks Nos. 3 and 610

at the Braintree terminal for a price of $1,028,466.   For the




     8
      Tanks Nos. 501 and 502 at the Linden-Tremley terminal are
48-foot-tall tanks with diameters of 117 feet, double bottoms,
cone roofs, and internal floating roofs.
     9
      The record does not indicate the exact amount that CITGO
paid for the construction of tanks Nos. 500 and 505 and their
respective foundations at the Linden-Tremley terminal. However,
the total amounts CITGO expended were $935,002 for tank No. 500
and $799,157 for tank No. 505. Both tanks are approximately the
same size as tanks Nos. 501 and 502.
     10
      Tanks Nos. 3 and 6 at the Braintree terminal are 45-foot-
tall, cone-roof tanks, with diameters of 125 feet.
                                 - 9 -

construction of the tanks’ foundations, CITGO paid Louis T.

Pompeo & Son, Inc., $105,709.     The total amount CITGO expended

for the project was $1,644,532.

      At the Vicksburg terminal, CITGO’s contractor, Baker Tank

Co./Altech, constructed tank No. 911 for $271,126.    The record

does not indicate how much CITGO paid for the construction of the

foundation.     The total amount CITGO expended for the project was

$439,506.

D.   Tank Corrosion, Inspection, and Repair

      Because steel tends to rust, tank corrosion is inevitable.

In extreme corrosion cases, a pit will develop in the steel

plates and lead to leakage.     Additionally, tank foundations may

settle at different levels under a tank, creating stress on the

tank shell and causing the tank to lose its original shape.       In

order to combat these problems, CITGO has an extensive program to

prevent and monitor corrosive damage to the tanks and to monitor

structural problems due to foundation settlement.

      Pursuant to its inspection program, at least every 10 years,

CITGO cleans and inspects each tank.     CITGO conducts inspections

visually and with electronic devices that gauge the floor plate

depth.     In some cases, CITGO lifts the tanks into the air to

provide a better view of the tank bottom or to inspect the tank


      11
      Tank No. 9 at the Vicksburg terminal is approximately 49
feet tall, with a cone roof, an internal floating roof, and a
diameter of 67 feet.
                                - 10 -

foundation.     In accordance with Environmental Protection Agency

(EPA) air emission permit requirements, CITGO annually inspects

the tanks’ external and internal floating roof seals and, every

10 years, inspects the external and internal floating roof

mechanisms.     CITGO’s tank inspection schedule is also designed to

comply with American Petroleum Institute Standard 653, Tank

Inspection, Repair, Alteration, and Reconstruction (API Standard

653).

      Repairing corroded tank floors may involve patching or

replacing the corroded floor plates or completely replacing the

tank floor.     In some cases, the tanks are lifted off the ground

in order to repair the floor underside or to perform foundation

repairs.     For example, CITGO has lifted tanks Nos. 2 and 3 at the

Vestal, New York, terminal in order to perform foundation

repairs.     When performing foundation repairs, lifting the tank

off the ground allows the tank to return to its normal shape.

If refined product leakage has occurred, soil remediation may be

accomplished by lifting the tank, removing the sand underneath,

and replacing the tainted soil with clean soil or, instead of

lifting the tank, by cutting out the tank floor in order to reach

the soil below it.

E.   Tank Relocations

        In addition to lifting tanks for repair purposes, tanks also

are lifted in order to relocate them either within the same
                               - 11 -

terminal or to a different terminal.     Tank relocations occur for

various reasons, such as returning leased land back to the owner,

making room for facility expansions, moving tanks closer to the

pumping and loading facility, or moving tanks onto a new site.

Tank relocations may involve one or more of the following

methods:    The hovercraft technology, the Watson Air Bag

technology, standard trucks and semitrailers, railway tracks and

railway bogies, load skates and steel I beams, truck crawler

units powered by hydraulics, helicopters,12 barges, floating

tanks in water like a ship,13 and dismantling the tank for

reconstruction at the new location.     Ultimately, the amount of

time required to perform a tank relocation depends on the method

chosen and the conditions at the site.

     1.    The Hovercraft Technology

     The hovercraft technology, or “air lift method”, relocates

fully assembled storage tanks.    A crew of seven people can

perform the relocation using this method.     First, the tank must

be cleaned and disconnected from any gauges and piping, and

anchoring devices must be welded to the tank.     Second, the site

route is prepared to assure that it is level.     Next, the crew



     12
      Due to a 20-ton weight limit, helicopters can move only
small tanks.
     13
      A large tank will float in water between 18 and 24 inches
deep. This relocation method is limited to short distances, for
example, across harbors.
                              - 12 -

attaches a flexible skirt to the bottom of the tank.    Large

diesel-powered air compressors pump air under the tank, lifting

the tank off the ground as much as 18 inches.    Finally, tractors

pull the tank to its new location.     Disconnection from the gauges

and piping, ground preparation, air lift relocation, and

reconnection to the gauges and piping system all can be performed

in 1 to 2 weeks.

     Although the hovercraft is an effective method for

relocating tanks intact, the technology has some limitations.

Unless the tank rests on a dry, level foundation, and grade

changes do not exceed 2 to 3 percent, the flexible skirt will

fold under.   Additionally, because three machines hold the tank,

the tank shell may be pulled a little out of shape.

     2.   The Watson Air Bag Technology

     Similar to the hovercraft technology, the Watson Air Bag

technology relocates tanks intact.     The tank lifting equipment is

portable and can be carried to the tank site by one worker.     In

order to keep a tank in service as long as possible, before

lifting and moving the tank from its old site, the new foundation

is built at the tank’s new site.

     Briefly, the Watson Air Bag technology relocation procedure

involves (1) inflating air bags placed under the tank until the

tank reaches the desired elevation; (2) connecting the tank to

the preferred method of relocation, such as railway track and
                                - 13 -

bogies or H-beams and load skates; and (3) once at the new site,

reversing the process and lowering the tank onto its new

foundation.    The entire lifting, moving, and lowering process can

be completed in 1 week.     For a tank with a diameter of 80 feet, a

crew of four people can perform the initial lifting process in

approximately 8 hours.

     When relocating tanks using the Watson Air Bag technology,

significant damage to a tank is unlikely.     Tanks are lifted

between 3 and 5 feet above the ground.      Although a section of the

tank could fall and hit the ground, any damage from such a fall

is repairable.    In some cases, the cost to move the tank intact

is only 30 percent of the cost to cut the tank down and

reconstruct it at the new site.

     3.    Dismantling and Reconstruction

     API Standard 653 provides procedures for dismantling and

reconstructing welded tanks for relocation from their original

site.     When dismantling the tank, API Standard 653 recommends

marking the shell, bottom, and roof plates for easy

identification.     If properly followed, the specifications of API

Standard 653 will produce a tank with an “acceptable appearance

and structural integrity”.

        A crew of 8 to 10 people can dismantle and reconstruct a

tank.     First, cranes hold the steel plates in place as the tank

is cut apart with torches or other cutting devices.     Then, the
                                - 14 -

crew loads the pieces onto trucks and hauls them.     Next, the crew

performs beveling work on the plate edges to prepare for welding

them back together.    Finally, the crew rebuilds the tank using

the same procedure as used for new tank construction.     See supra

p. 7.     The cutting and loading jobs can be performed in about 1

week, on top of the 5 to 6 weeks for reconstruction at the new

site.

     One possible problem when using this method to relocate

tanks is that, when a tank is put back together, the steel may

not return to its previous shape.     In addition, Government-

imposed highway weight restrictions may limit the use of this

relocation method.     For example, the Federal allowable highway

weight load is 90,000 pounds, which includes the truck’s weight.

     4.     Other Tank Relocation Issues

     In addition to weight restrictions, other highway-related

restrictions, including width and height restrictions, may make

it difficult to transport tanks, particularly when the tanks are

intact.    However, because most terminal facilities are located on

water or near water, it is possible to move a tank via barge

instead.    In contrast to highway tank relocations, barge

relocations are a much less restrictive method, even though, in

some cases, bridges over waterways could create height and width

obstacles.
                                   - 15 -

        When relocating intact tanks with internal roof support

columns, the contractor must install internal bracing to support

the floor and the roof.14       The internal bracing consists of a

steel pipe frame between the tank roof support columns that

transfers the tank’s weight to the shell.          Without the internal

bracing the tank roof could fall down or the tank floor could

invert during the lifting process.

        5.     Past Relocations of CITGO’s Tanks

        Since 1993, CITGO has relocated two tanks.15      In 1993, CITGO

hired a professional tank lifter, Frank W. Hake, Inc., to

relocate tank No. 44 at the East Chicago terminal approximately

1,000 feet using the hovercraft technology.         Tank No. 44 was a

55,000-barrel tank, with a height of 46 feet and a diameter of 92

feet.        CITGO relocated tank No. 44 in preparation for the

transfer of the land to its former owner, Occidental Petroleum

Corp., for remediation of environmental hazards.         Two other

smaller tanks were cut down and sold for scrap.

     CITGO cannot substantiate the amount it paid to Frank W.

Hake, Inc., to perform the relocation of tank No. 44 but

estimated that the cost was $75,000.        This estimate does not


        14
      If the tank is only lifted off the ground, but not moved,
the internal bracing may not be necessary. Instead, the shell
can be lifted separately from the tank floor and tank roof under
each roof support column.
        15
      During the years at issue, CITGO did not make additions or
improvements to these tanks.
                              - 16 -

include any costs related to the preparation of a path for the

relocation or the construction of a new concrete ringwall

foundation.   The relocation itself took approximately 4 hours.

      In 1994, CITGO relocated a 30,000-barrel tank from Austin,

Texas, to the Vicksburg terminal, a distance of approximately 550

miles.   The tank was 40 feet high with a diameter of 73 feet and

became known as tank No. 2.   Baker Tank Co. performed the

relocation using the dismantling and reconstruction method.

CITGO relocated the tank in anticipation of closing its Austin

terminal due to local opposition to its operation after an

environmental problem arose at another oil company’s terminal.

Three other tanks were sold for scrap.

      According to CITGO’s contract with Baker Tank Co. for the

relocation of Vicksburg tank No. 2, the cost of the relocation

was $234,856.   The price included the installation of a second

tank bottom, an internal floating roof, and accessories.

F.   The Tank Improvements at Issue

      In 1996 and 1997, CITGO spent $13,075,824 and $803,489,

respectively, on the construction of new tanks and additions or

improvements to existing tanks.   CITGO capitalized the

expenditures for its books and records.   Petitioner depreciated

the expenditures using the MACRS recovery rates prescribed in

Rev. Proc. 87-56, 1987-2 C.B. 674, 686, for Asset Guideline Class
                               - 17 -

57.0 (asset class 57.0) property eligible for a 5-year recovery

period.

     On May 2, 2002, respondent sent petitioner separate notices

of deficiency.    In the notices of deficiency, respondent

determined that the 1996 and 1997 expenditures were eligible for

a 15-year recovery period under MACRS Asset Guideline Class 57.1

(asset class 57.1).

     On July 22, 2002, petitioner filed separate petitions with

this Court on behalf of all eligible members of the affiliated

group of which petitioner was a common parent.    In its petitions,

petitioner alleged that respondent:

     erroneously disallowed [the] depreciation deductions
     * * * by erroneously classifying [the tanks] as “land
     improvements” designated as asset class 57.1 * * *
     rather than as “section 1245 assets used in marketing
     petroleum and petroleum products” designated as asset
     class 57.0 * * *

                               OPINION

     Section 167(a)(1) permits a depreciation deduction for the

exhaustion and wear and tear of property used in a trade or

business.   In the case of tangible property, the rules of section

168 will determine the proper depreciation deduction.   See secs.

167(b), 168(a).   Section 168(e) places property into categories

on the basis of the property’s class life, which categories are

then used to determine the applicable recovery period under

section 168(c).
                                - 18 -

     Rev. Proc. 87-56, 1987-2 C.B. 674, 686, sets forth the class

lives to be used when computing depreciation allowances under

section 168.   Asset class 57.0, entitled “Distributive Trades and

Services”, assigns a 5-year recovery period to “section 1245

assets used in marketing petroleum and petroleum products”.

Asset class 57.1, entitled “Distributive Trades and Services–-

Billboard, Service Station Buildings and Petroleum Marketing Land

Improvements”, assigns a 15-year recovery period to “section 1250

assets, including * * * depreciable land improvements, whether

section 1245 property or section 1250 property, used in the

marketing of petroleum and petroleum products”.    Section 1245

property includes storage facilities used in connection with the

distribution of petroleum and petroleum products.    Sec.

1245(a)(3)(E).

     Both parties agree that the tanks are used in the marketing

and distribution of petroleum and petroleum products and,

therefore, should be classified under either asset class 57.0 or

asset class 57.1.    The parties also agree that, in order to

properly classify the tanks, we must decide whether the tanks

constitute inherently permanent structures using the six factors

articulated in Whiteco Indus., Inc. v. Commissioner, 65 T.C. 664,

672-673 (1975).     Petitioner concedes that section 7491 does not

apply to shift the burden of proof to respondent.    See also Rule

142(a)(1).
                              - 19 -

     In JFM, Inc. & Subs. v. Commissioner, T.C. Memo. 1994-239,

this Court concluded that gasoline canopies used in marketing

petroleum products were not “land improvements” within the

meaning of asset class 57.1 and should be classified under asset

class 57.0.   To determine the proper characterization of the

canopies, we considered whether the canopies were inherently

permanent structures.   We applied the following six factors

articulated in Whiteco Indus., Inc. v. Commissioner, supra at

672-673:

     (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 which tend to show the
     expected or intended length of affixation, i.e., are
     there circumstances which show that 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? Is it “readily
     removable”? * * *

     (5) How much damage will the property sustain upon its
     removal? * * *

     (6) What is the manner of affixation of the property to
     the land? * * * [Citations omitted.]

In addition, we observed that, although no single Whiteco factor

is decisive, each factor is probative to some extent.   JFM, Inc.

& Subs. v. Commissioner, supra.

     Petitioner contends that the tanks are not inherently

permanent structures.   According to petitioner’s application of
                              - 20 -

the Whiteco criteria, each factor favors petitioner’s position.

In direct contrast, respondent contends that each Whiteco factor

supports respondent’s position that the tanks are inherently

permanent structures.   Our analysis of the Whiteco factors and

the parties’ arguments regarding them follow.

A.   Is the Property Capable of Being Moved, and Has It in Fact
     Been Moved?

      Although CITGO has moved tanks in the past, and Alan R.

Watson,16 creator of the Watson Air Bag technology, testified as

an expert on tank lifting and relocation, respondent maintains

that the tanks do not satisfy this Whiteco factor.   Respondent

argues that the tanks can be moved intact only within the same

terminal or onto an adjacent property and that relocating tanks

over long distances requires cutting the tanks into pieces.

According to respondent, this type of movement is not Whiteco

“movement”.

      In Whiteco Indus., Inc. v. Commissioner, supra at 672, we

did not provide a definition for the term “movement” but

concluded that this factor was “clearly” satisfied because the

outdoor advertising signs had in fact been moved.    As support for

our conclusion, we cited Estate of Morgan v. Commissioner, 52

T.C. 478, 483 (1969), affd. per curiam 448 F.2d 1397 (9th Cir.


      16
      Alan R. Watson is president of A.R. Watson USA, LLC, and
is also employed by his New Zealand company, A.R. Watson, Ltd.
A.R. Watson USA, LLC, markets the concept of tank lifting and
performs tank lifts and relocations.
                              - 21 -

1971), a case in which evidence of “movement” included

relocations of floating docks to new sites within the same basin,

where they remained “part of the same complex of floating docks”.

See also Scott Paper Co. v. Commissioner, 74 T.C. 137, 144-145,

170-171 (1980) (primary electric components relocated within the

same facility treated as movable); Moore v. Commissioner, 58 T.C.

1045, 1048, 1052 (1972) (mobile homes relocated within the same

park treated as movable), affd. per curiam 489 F.2d 285 (5th Cir.

1973).

     Even though CITGO has not relocated tanks intact over long

distances, the tanks are capable of such movement, contrary to

respondent’s contention.   In his expert report and at trial, Mr.

Watson described tank relocations that he has performed with the

tanks intact.   Mr. Watson testified that he relocated one tank in

Alaska a distance of 55 miles and relocated three tanks in New

Zealand approximately 200 miles.17

     We also disagree with respondent that the tanks must remain

intact when relocated.   Respondent does not direct us to, and we

are unaware of, any case law establishing such a requirement.

Moreover, in JFM, Inc. & Subs. v. Commissioner, supra, the

gasoline canopies were dismantled before they were relocated.




     17
      We find unpersuasive respondent’s attempts to distinguish
these relocations because they did not occur in the “continental
United States”.
                                - 22 -

      Petitioner has demonstrated that the tanks are capable of

being moved and have in fact been moved.    Consequently, this

factor favors petitioner.

B.   Is the Property Designed or Constructed To Remain Permanently
     in Place?

      Petitioner contends that the tanks’ design and construction

demonstrate that the tanks are not to remain permanently in

place.     According to petitioner, CITGO designed and constructed

the tanks in conformity with industry standards, which enables

CITGO to dismantle the tanks and reconstruct them at new sites

pursuant to API Standard 653 or relocate them intact with the

Watson Air Bag technology.18

      In contrast, respondent contends that the tanks were not

designed to be moved to new locations but, instead, were designed

to remain in place for their entire economic useful lives.

Comparing the tanks to the property at issue in cases such as

Whiteco Indus., Inc. v. Commissioner, 65 T.C. 664 (1975) (outdoor

advertising signs); JFM, Inc. & Subs. v. Commissioner, supra

(gasoline canopies); and Fox Photo, Inc. v. Commissioner, T.C.

Memo. 1990-348 (1-hour photo labs), respondent asserts that the

tanks are significantly different for the following reasons:     (1)


      18
      Petitioner attached to its posttrial brief a document
purportedly describing European tank-moving standards.
Petitioner did not submit this document at trial. Consequently,
the document is not part of the record, and we disregard it. See
Rule 143(b); Lombard v. Commissioner, T.C. Memo. 1994-154 n.3,
affd. without published opinion 57 F.3d 1066 (4th Cir. 1995).
                                - 23 -

The tanks are massive in size and have economic useful lives of

60 to 70 years, and (2) AFEs for building new tanks at terminals

do not reflect an intent to relocate the new tanks at some later

date.     In addition, respondent argues that the need for internal

bracing when relocating intact tanks with internal roof support

columns demonstrates that the tanks were designed to remain

permanently in place.

     In Whiteco Indus., Inc. v. Commissioner, supra at 672, we

concluded that the outdoor advertising signs were “not designed

or constructed to last permanently.”     The signs were designed to

last only for the duration of the advertising contract, about 5

years, at which time the signs would require “substantial

renovation”, including a new sign face and various repairs.     Id.

We did not require the taxpayer to show that the taxpayer

actually intended to relocate the property at a later date.     Id.;

see also JFM, Inc. & Subs. v. Commissioner, T.C. Memo. 1994-239

(same).

     Although the property at issue in the present case is quite

large, for this second Whiteco factor, the focus of our inquiry

is on the permanence of the property’s design and construction.

The property’s size is not determinative.    See, e.g., Estate of

Morgan v. Commissioner, supra at 480 (floating docks at issue had

one walkway that was approximately 290 feet long).
                              - 24 -

     We also disagree with respondent’s contention that property

with a relatively long economic useful life is necessarily

designed to remain permanently in place.   In Estate of Morgan v.

Commissioner, 52 T.C. at 481, 483, where the floating docks had

an estimated useful life of 20 years, or longer with periodic

part replacements, we concluded that the floating docks were not

inherently permanent.   Similarly, in Film N’ Photos, Inc. v.

Commissioner, T.C. Memo. 1978-162, the photo merchandising huts

at issue were not inherently permanent, even though they could

remain at the same location for 20 years or more and had a useful

life of 50 years or more.   See also Fox Photo, Inc. v.

Commissioner, supra (1-hour photo labs had an estimated useful

life of 50 years but were not designed to remain permanently in

place).

     Respondent further asserts that the internal roof support

columns in the tanks reflect permanence.   When relocating an

intact tank with internal roof support columns, internal bracing

is required to support the tank floor and roof.   The bracing is

not part of the tank’s design and must be added to a tank before

moving it.   However, when using the dismantling and

reconstruction procedures for relocating tanks in API Standard

653, the internal bracing is not necessary.

     In Fox Photo, Inc. v. Commissioner, supra, the 1-hour photo

labs’ steel frames were reinforced beyond regular support
                               - 25 -

requirements so that the lab halves could be moved without

collapsing.   We concluded that the labs were not constructed to

remain permanently in place.   Id.   Fox Photo, Inc. is

distinguishable from the present case, however, because CITGO’s

tanks have no internal superstructure.    We cannot agree that, by

constructing the tanks without the otherwise structurally

unnecessary internal bracing, particularly when the bracing is

not needed to relocate tanks pursuant to API Standard 653,

petitioner constructed the tanks to remain permanently in place.

      When CITGO designs and constructs its tanks, CITGO does so

in compliance with API Standard 650.    Pursuant to API Standard

653, tanks constructed according to API standards can be

dismantled and then reconstructed at a new site.    In addition, as

Mr. Watson testified, tanks built to API Standards also can be

lifted and moved using the Watson Air Bag technology.     Clearly,

such tanks are not designed or constructed to remain permanently

in one place.   This factor favors petitioner.

C.   Are There Circumstances Which Tend To Show the Expected or
     Intended Length of Affixation, i.e., Are There Circumstances
     Which Show That the Property May or Will Have To Be Moved?

      Petitioner concedes that, when CITGO places new tanks in

service, CITGO does not intend to move the tanks immediately.

However, petitioner contends that it is foreseeable that CITGO

may have to move the tanks for maintenance, environmental

remediation, or various business or economic reasons.     First,
                              - 26 -

petitioner argues that CITGO may need to move a tank by lifting

it off the ground in order to repair corrosion of the steel

plates on the tank’s underside.   Petitioner also asserts that the

least intrusive method for replacing contaminated sand underneath

a tank involves moving the tank, either by suspending the tank in

the air or temporarily moving the tank off its foundation, to the

side.   Furthermore, petitioner argues, possible changes in

terminal demand may lead to the sale or closing of terminals or

the sale of tanks, scenarios in which it is reasonably likely

that CITGO may have to move tanks.

     On the other hand, respondent contends that the tanks’ ages,

their location on fee simple land, and CITGO’s attempts to extend

their useful lives with extensive maintenance and repairs

demonstrate that CITGO intended to keep the tanks in place

permanently.   Respondent also asserts that CITGO’s two prior tank

relocations for environmental reasons were unusual occurrences

and do not demonstrate “any real likelihood” that CITGO may have

to move a tank.

     In Whiteco Indus., Inc. v. Commissioner, 65 T.C. at 672, we

concluded that the taxpayer “[did] not intend, nor could it

realistically expect, the signs to remain permanently in place.”

We observed that the taxpayer was aware that “numerous

situations” could arise which would necessitate moving the signs

either before or after the expiration of the taxpayer’s contract
                                 - 27 -

with advertisers.   Id.    Examples of such situations included the

leased land’s owner’s refusing to renew the lease, a change in

the location of the road, or some other event that would make the

sign’s position undesirable.      Id.

     Scott Paper Co. v. Commissioner, 74 T.C. at 172, in which we

held that primary electric components were not inherently

permanent structures, provides another example of circumstances

which tend to show that property may or will have to be moved.

In Scott Paper Co., this Court acknowledged that changes in power

demands could arise that would require the taxpayer to move the

primary electric components and modify them to accommodate those

new demands.   Id. at 171.    Indeed, when such changes in demand

had occurred in the past, the taxpayer had relocated components

within the facility.      Id. at 144-145, 171.

     Although some of CITGO’s tanks have been in existence for

more than 60 years, and, for the most part, the tanks were not

situated on leased land,19 we do not think that petitioner could

realistically expect the tanks to remain permanently in place.

After considering all of the evidence, we agree with petitioner

that, when dealing with refined products, it is reasonably likely


     19
      Whether the taxpayer owned or leased the land on which the
property was located is not determinative for purposes of this
factor. In Scott Paper Co. v. Commissioner, 74 T.C. 137, 144
(1980), we held that a part of the electrical distribution system
of a pulp and paper making plant was not an inherently permanent
structure, without even addressing whether the taxpayer owned the
land on which the plant was located.
                                - 28 -

that an environmental problem may arise, which would require

CITGO to move the tanks.    In some cases, CITGO may need to move a

tank only temporarily in order to replace the contaminated sand

underneath the tank.    In other cases, however, as the

circumstances surrounding CITGO’s past tank relocations

demonstrate, CITGO may need to permanently remove a tank from one

site and place it at a different terminal.

      In addition to environmental reasons for moving tanks, CITGO

may need to move tanks within a terminal for economic reasons,

such as to make room for terminal expansions, bring tanks closer

to pumping and loading facilities, or maximize terminal

facilities by joining tank farms together.    We disagree with

respondent that the maintenance and repair work CITGO has

performed on the tanks negate the possibility that the tanks may

have to be moved.    In order to keep the tanks in compliance with

EPA and industry standards, CITGO must perform maintenance and

make required repairs.    This factor favors petitioner.

D.   How Substantial a Job Is Removal of the Property and How
     Time-Consuming Is It? Is It “Readily Removable”?

      According to petitioner, removing the tanks is not a

substantial, time-consuming job.    Petitioner concedes that

removing the tanks is a more “involved” process than removing

outdoor advertising signs, 1-hour photo labs, or gasoline

canopies but contends that removing the tanks is relatively no

more difficult.     Respondent disagrees, arguing that the tanks are
                               - 29 -

not readily removable due to the amount of time required to

complete the relocation process; the height, weight, and width

limitations related to transporting tanks on highways or across

waterways; and the complexity of the relocation procedures.

     In Whiteco Indus., Inc. v. Commissioner, supra at 673, we

described the disassembly and removal of the taxpayer’s outdoor

advertising signs as a “relatively quick and easy process.”

Although the record in Whiteco did not indicate the full amount

of time required to complete the process, we concluded that, on

the basis of the known time and effort involved, the signs were

readily removable.   Id.; see also Film N’ Photos, Inc. v.

Commissioner, T.C. Memo. 1978-162 (photo merchandising units

could be removed “in a relatively short time”).

     With respect to the gasoline canopies in JFM, Inc. & Subs.

v. Commissioner, T.C. Memo. 1994-239, although we acknowledged

that the components were “collectively formidable”, we observed

that the canopies could be erected or dismantled and moved in a

few days.20   We also noted that the gasoline canopies had in the

past been dismantled, modified, and reinstalled or sold to third

parties.   Id.




     20
      Specifically, a gasoline canopy could be installed by a
crew of four in 3 days and dismantled by a crew of three in 2
days. JFM, Inc. & Subs. v. Commissioner, T.C. Memo. 1994-239.
                              - 30 -

     When relocating tanks intact, in addition to the time

required to remove the tanks physically from their original

sites, more time may be needed for one or more of the following

reasons:   (1) Internal bracing must be installed before moving

certain tanks intact, which, for a 180-foot diameter tank,

requires 4 to 5 days; (2) building a new concrete ringwall

foundation takes approximately 1 to 2 weeks; (3) the tanks and/or

the terminals may require certain modifications or repairs before

or after installation of the tanks at the new site; and (4) the

new site may be several miles away.    We disagree with respondent

that, in our determination of whether the tanks are readily

removable, we should consider the time required for these

additional steps.

     In Whiteco, JFM, and similar cases, we limited our

application of this factor to the job of removing the property

from its original site.   Indeed, in cases in which we had the

opportunity to incorporate the time required for related

preparatory work, repair work, or travel, we did not do so.   See

Standard Oil Co. (Ind.) v. Commissioner, 77 T.C. 349, 372-373,

409 (1981) (excluded travel time when determining whether service

station signs and lighting facilities were readily removable);

Scott Paper Co. v. Commissioner, supra at 172 (focused on how

much time was required to “move” the components rather than how

long it would take to make them “operational” at the new site if
                              - 31 -

2 months of preparatory work had not been performed ahead of

time); Fox Photo, Inc. v. Commissioner, T.C. Memo. 1990-348

(excluded the time required to restore the old site to its

original condition and to repair and refurbish the 1-hour photo

labs for reuse and, instead, focused on time required to remove

the labs from their location).   Because the consideration of

travel time is not appropriate for this factor, we also decline

to consider the height, weight, and width restrictions that may

arise when transporting the tanks on certain roads or over

certain waterways.

     The record is not entirely clear with respect to the amount

of time required for removal of the tanks using the various tank

relocation methods.   For example, the 1- to 2-week time estimate

for moving tanks with the hovercraft technology includes time

spent on work to make the tanks operational at the new site.    As

demonstrated by CITGO’s relocation of East Chicago tank No. 44,

however, when the hovercraft technology is properly used, small

to medium size tanks can be removed from their original sites in

approximately 4 hours, a shorter amount of time than the 2 days

required to remove the gasoline canopies in JFM, Inc. & Subs. v.

Commissioner, supra, and the 12 to 18 hours required to remove

the 1-hour photo labs in Fox Photo, Inc. v. Commissioner, supra.

Similarly, for the Watson Air Bag technology, the record

indicates that crews will require about 1 week for the entire
                              - 32 -

relocation but is silent as to the amount of time required to

remove a tank using that method.   The record does show that with

the dismantling and reconstruction method described in API

Standard 653, a crew can remove the tank in about 1 week.

      Although the removal of tanks with these methods has the

potential to require more time and larger crews than the removal

of other types of property at issue in past cases, we do not

think that the time and crew requirements for removing tanks are

too substantial.   Moreover, petitioner has demonstrated that it

is possible to remove tanks in a relatively short amount of time.

We also cannot agree with respondent that the complex procedures

for removing tanks, which are carried out by professionals

familiar with the technology, render the job too substantial.

      On the basis of the foregoing, this factor favors

petitioner.

E.   How Much Damage Will the Property Sustain Upon Its Removal?

      In Whiteco Indus., Inc. v. Commissioner, 65 T.C. at 673, we

observed that “much” of an outdoor advertising sign was not

damaged upon its removal.   We also noted that a sign’s removal

generated no wastage, except for the portion of the poles

surrounded by concrete, and, if the sign was removed at the end

of an advertising contract, the sign face was replaced.     Id.
                              - 33 -

     When we applied this factor in JFM, Inc. & Subs. v.

Commissioner, supra, we concluded that occasional damage to the

gasoline canopies’ side panels upon removal was acceptable

because “most of the components [were] reusable.”   In Film N’

Photos, Inc. v. Commissioner, T.C. Memo. 1978-162, we were

satisfied that the removal of photo merchandising units and their

bases did not cause “significant damage” to the units or to the

parking lots on which the units were situated.   Additionally, in

Fox Photo, Inc. v. Commissioner, supra, damage sustained upon the

removal of the 1-hour photo labs was permissible because it was

“cheaper to repair than building a new lab.”   See also Scott

Paper Co. v. Commissioner, 74 T.C. at 172 (primary electric

components remained “intact and reusable” after their removal).

     Acknowledging that the tanks sustain only minimal damage

when moved intact, respondent’s arguments with respect to this

Whiteco factor focus on the dismantling and reconstruction method

described in API Standard 653.   According to respondent, because

the steel may not return to its original shape once the tanks are

reconstructed, the tanks sustain damage when they are cut up and

moved any distance.   Respondent also relies on Mr. Watson’s

opinion that a reconstructed tank never looks the same and,

therefore, is an inferior product.

     Even if dismantling and reconstructing a tank may somewhat

distort the tank’s shape, the record contains no evidence from
                              - 34 -

which to conclude that the damage would be significant or that

the tank would no longer be usable.    To the contrary, if the

procedures in API Standard 653 are properly followed, the

reconstructed tank will have an “acceptable appearance and

structural integrity”.   In addition, during the years in issue,

and after CITGO relocated Vicksburg tank No. 2 using this method,

Vicksburg tank No. 2 remained in service.    This factor favors

petitioner.

F.   What Is the Manner of Affixation of the Property to the Land?

      Petitioner asserts that the tanks are not fastened, tied, or

otherwise attached to the land.   According to petitioner, most of

CITGO’s tanks at issue merely rest on top of “native soil”, and

the remainder sit on concrete ringwall foundations, which

foundations are not damaged when the tanks are moved.    Respondent

counters that the tanks’ sheer weight and size affix them to the

land.

      In Whiteco Indus., Inc. v. Commissioner, supra at 666-667,

the outdoor advertising signs’ poles were driven 5 to 10 feet

into the ground and were cemented in place by concrete rings.

Even so, because the poles could “easily be removed from the

ground”, and were removed in practice, we concluded that the

poles’ manner of affixation to the land did not reflect

permanence.   Id. at 673.
                               - 35 -

     In JFM, Inc. & Subs. v. Commissioner, T.C. Memo. 1994-239,

we decided that the gasoline canopies were not permanently

affixed to the land, even though the canopies’ posts were bolted

onto special concrete footings.   We observed that, once the posts

were unbolted, the concrete footings were the only “residual

structures remaining on the land.”      Id.; see also Standard Oil

Co. (Ind.) v. Commissioner, 77 T.C. at 407, 409 (service station

sign poles bolted into concrete foundations were not permanently

affixed);   Fox Photo, Inc. v. Commissioner, T.C. Memo. 1990-348

(1-hour photo labs attached to their foundations, but easily

removable, were not permanently affixed); Film N’ Photos, Inc. v.

Commissioner, supra (photo merchandising units attached to

concrete bases that only rested on the parking lot were not

permanently affixed to the land).

     Unlike the property in Whiteco or JFM, CITGO’s tanks are not

buried underground or bolted to their foundations; the tanks rest

on top of their foundations.   Contending that the tanks’ “massive

weight and size * * * make them sufficiently affixed to the land

for Whiteco purposes”, respondent relies on Siler v.

Commissioner, T.C. Memo. 1985-257.

     In Siler, the property at issue was six horizontally

positioned petroleum product storage tanks with 11,500- to

17,500-gallon capacities, which were cradled in the U-shaped top

of concrete or brick piers extending 30 inches below ground.     The
                                - 36 -

storage tanks had not been moved for at least 24 years.      We

applied Whiteco and held that the storage tanks were inherently

permanent structures.    With respect to the sixth Whiteco factor,

we concluded that the storage tanks’ sheer weight and girth

affixed them to the piers, and we analyzed the storage tanks and

the piers as “integrated units”.     In a footnote, we explained our

decision to treat the storage tanks and piers as one unit as

follows:   (1) There was never an intention to move the storage

tanks; (2) the storage tanks had never been moved; and (3) moving

the storage tanks could be done only with great expense and

difficulty.     Siler v. Commissioner, supra.

     Although Siler also involved petroleum product storage

tanks, the facts of Siler are distinguishable from those of the

present case.    CITGO’s tanks are vertical, whereas the storage

tanks in Siler were cradled horizontally.       Most importantly, the

reasons we gave in Siler for treating the storage tanks and piers

as one unit are not applicable to the present case:      CITGO cannot

realistically expect the tanks to remain permanently in place;

CITGO has moved tanks in the past; and CITGO can move tanks

without relatively great expense or difficulty when the cost of

relocating tanks is compared to the cost of constructing new

tanks.   See supra pp. 8-9, 15-16.

     We agree that CITGO’s tanks have substantial weight, but the

tanks are not affixed to their foundations in any manner that
                              - 37 -

would indicate the tanks are to remain there permanently.

Consequently, we conclude that this factor favors petitioner.

G.   Conclusion

      After carefully considering all of the facts and concluding

that all six Whiteco factors favor petitioner, we hold that the

tanks are not inherently permanent structures.   Accordingly, the

tanks are included in asset class 57.0 of Rev. Proc. 87-56, 1987-

2 C.B. 686, and treated as 5-year property under section

168(e)(1).

      We have considered the remaining arguments of both parties

for results contrary to those expressed herein and, to the extent

not discussed above, find those arguments to be irrelevant, moot,

or without merit.

      To reflect the foregoing,



                                         Decisions will be entered

                                    under Rule 155.
