                                                PPL CORPORATION & SUBSIDIARIES, PETITIONER v.
                                                    COMMISSIONER OF INTERNAL REVENUE,
                                                               RESPONDENT
                                                        Docket No. 25393–07.                       Filed July 28, 2010.

                                                  P’s subsdiary (S) is an operating electric utility engaged in
                                               the generation, transmission, and distribution of electricity. It
                                               provides various lighting services (e.g., street lighting) for
                                               public and private entities. Street light assets include the
                                               light fixtures, hardware to mount the fixtures, various types
                                               of poles, and wires. The parties dispute the length in years of
                                               the recovery period that S must use to calculate its annual
                                               depreciation deduction for street light assets. Held: Street
                                               light assets are neither assets used in the distribution of elec-
                                               tricity for sale nor land improvements. Thus, street light
                                               assets do not fall within asset class 49.14, Electric Utility
                                               Transmission and Distribution Plant (with a recovery period
                                               of 20 years), or asset class 00.3, Land Improvements (with a
                                               recovery period of 15 years), specified in Rev. Proc. 87–56,
                                               1987–2 C.B. 674. Rather, street light assets are property with-
                                               out a class life, classified as ‘‘7-year property’’ (with a recovery
                                               period of 7 years) pursuant to sec. 168(e)(3)(C)(ii), I.R.C.
                                               (1997).

                                        Richard E. May, Mark B. Bierbower, and Timothy L.
                                      Jacobs, for petitioner.
                                        Melissa D. Arndt, Allan E. Lang, Michael C. Prindible, and
                                      R. Scott Shieldes, for respondent.
                                        HALPERN, Judge: PPL Corp. (petitioner) is the common
                                      parent of an affiliated group of corporations (the group or
                                      affiliated group) making a consolidated return of income. By
                                      notice of deficiency (the notice), respondent determined a
                                      deficiency of $10,196,874 in the group’s Federal income tax
                                      176




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                                      for its 1997 taxable (calendar) year and also denied a claim
                                      for refund of $786,804. The issues for decision are whether
                                      respondent properly (1) denied the claim for the refund,
                                      which is related to the creditability of the United Kingdom
                                      (U.K.) windfall tax paid by petitioner’s indirect U.K. sub-
                                      sidiary, (2) included as dividend income a distribution that
                                      petitioner received from the same indirect U.K. subsidiary,
                                      but which, within a few days, the subsidiary rescinded and
                                      petitioner repaid, and (3) denied depreciation deductions that
                                      petitioner’s U.S. subsidiary claimed for street and area
                                      lighting assets (the street light issue). We shall address the
                                      third issue in this report. A forthcoming report will address
                                      the first two issues.
                                         Unless otherwise stated, all section references are to the
                                      Internal Revenue Code in effect for 1997, and all Rule ref-
                                      erences are to the Tax Court Rules of Practice and Proce-
                                      dure.

                                                                          FINDINGS OF FACT

                                      Stipulations
                                        The parties have entered into a first, second, and third
                                      stipulation of facts. The facts stipulated are so found. The
                                      stipulations, with accompanying exhibits, are incorporated
                                      herein by this reference.
                                      Petitioner’s Business
                                         Petitioner is a Pennsylvania corporation that was known
                                      during 1997 as PP&L Resources, Inc. It is a global energy
                                      company. Through its subsidiaries, it produces electricity,
                                      sells wholesale and retail electricity, and delivers electricity
                                      to customers. It provides energy services in the United States
                                      (in the Mid-Atlantic and Northeast) and in the United
                                      Kingdom.

                                      PP&L
                                        During 1997, Pennsylvania Power & Light Co., also a
                                      Pennsylvania corporation, was petitioner’s direct subsidiary.
                                      On September 12, 1997, Pennsylvania Power & Light Co.
                                      changed its name to PP&L, Inc. (Hereinafter, we shall refer
                                      to that corporation, both before and after it changed its




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                                      178                135 UNITED STATES TAX COURT REPORTS                                      (176)


                                      name, as PP&L.) During 1997, PP&L was the operating elec-
                                      tric utility company for the affiliated group and was engaged
                                      in the generation, transmission, and distribution of elec-
                                      tricity. During that year, PP&L was petitioner’s principal
                                      subsidiary, with approximately 96 percent of the assets of
                                      petitioner’s affiliated group.
                                      Electricity Basics: Concepts and Definitions
                                         Electricity is the flow of electric current. The rate of that
                                      flow is measured in amperes (or amps). The pressure that
                                      causes electricity to flow (voltage) is measured in volts.
                                      Resistance to the flow of electricity is measured in ohms.
                                         The combination of electromotive force (volts) and current
                                      (amperes) is the rate of work being done, measured in watts.
                                      One thousand watts are a kilowatt. If the rate of work is one
                                      kilowatt and that rate lasts an hour, then one kilowatt-hour
                                      of work is completed. The quantity of electricity used is com-
                                      monly measured in kilowatt-hours.
                                      The Delivery of Electricity
                                         There are three distinct stages in delivering electricity:
                                      generation, transmission, and distribution. Generation is the
                                      process of producing electricity. Transmission is the process
                                      of moving high voltage electricity from power plants to dis-
                                      tribution substations. Distribution is the process of moving
                                      lower voltage electricity from distribution substations to cus-
                                      tomers.
                                         Distribution begins at the distribution substation, where
                                      transformers decrease the voltage of the incoming electricity.
                                      The outgoing electricity flows through primary distribution
                                      lines to distribution transformers, which further reduce its
                                      voltage. The electricity then flows through secondary dis-
                                      tribution lines to service drops, street and highway lights,
                                      nonroadway lights, and traffic signals. A service drop is the
                                      connection between a secondary distribution line and a cus-
                                      tomer. A meter at the end of the service drop measures the
                                      electricity the customer uses, typically in kilowatt-hours.
                                      Street Light Assets
                                        During 1997, and at other relevant times, PP&L provided
                                      street and highway lighting (street lighting) and nonroadway




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                                      (176)                 PPL CORP. & SUBS. v. COMMISSIONER                                      179


                                      lighting (area lighting) for public and private entities. We
                                      refer to the equipment used to provide street and area
                                      lighting as street light assets. Street light assets include the
                                      light fixtures (luminaires); the mast arms or brackets (used
                                      to mount the luminaires on wood poles or other structures);
                                      aluminum, steel, and fiberglass poles; and wires.
                                         Luminaires are generally mounted on (1) wood poles
                                      (which might also support secondary distribution lines,
                                      service drops, and distribution transformers attached to pri-
                                      mary distribution lines), (2) aluminum, steel, or boulevard
                                      fiberglass poles connected underground to distribution trans-
                                      formers, (3) nonboulevard fiberglass poles, and (4) buildings,
                                      bridges, tunnels, and underpasses. 1 Wood poles are part of
                                      the distribution system.
                                         Street light assets convert electricity into light and can be
                                      disconnected from the distribution system without affecting
                                      any other part of that system.
                                         In 1997, PP&L charged for street and area lighting services
                                      but did not actively market or advertise those services.
                                      Tax Accounting
                                        In December 1997, PP&L filed Form 3115, Application for
                                      Change in Accounting Method, making an automatic method
                                      change under Rev. Proc. 96–31, 1996–1 C.B. 714. In that
                                      Form 3115, PP&L reclassified its street light assets,
                                      removing them from asset class 49.14, Electric Utility Trans-
                                      mission and Distribution Plant, and classifying them as prop-
                                      erty without a class life. See Rev. Proc. 87–56, 1987–2 C.B.
                                      674, 675, 685. 2 As a result of that reclassification, for PP&L’s
                                      street light assets placed in service before 1997, petitioner
                                      claimed a negative adjustment to its 1997 taxable income
                                      under section 481(a) of $18,606,135. Consistent with that
                                      reclassification, PP&L classified street light assets it placed
                                      in service in 1997 as property without a class life.
                                        In the notice, respondent disallowed both the $18,606,135
                                      negative adjustment to petitioner’s 1997 taxable income and
                                      $1,476,120 of tax depreciation for 1997 attributable to
                                        1 Boulevard fiberglass poles (like aluminum and steel poles) are bolted to their foundations,

                                      whereas nonboulevard fiberglass poles are embedded approximately 5 feet in the ground and
                                      backfilled with cement, stone, and tamped earth. The distinction between boulevard fiberglass
                                      poles and nonboulevard fiberglass poles is relevant only to our discussion of whether street light
                                      assets are land improvements. See sec. V. of this report.
                                        2 We discuss the applicable statutory and regulatory framework in sec. II. of this report.




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                                      180                135 UNITED STATES TAX COURT REPORTS                                      (176)


                                      the classification of PP&L’s street light assets as property
                                      without a class life rather than as property described in asset
                                      class 49.14.
                                                                                  OPINION

                                      I. Introduction
                                        The parties dispute the length in years of the recovery
                                      period that petitioner must use to calculate its annual depre-
                                      ciation deductions for street light assets. Respondent argues
                                      that the proper recovery period for those assets is 20 years;
                                      in the alternative, he argues that it is 15 years. Petitioner
                                      argues that it is 7 years. We agree with petitioner.
                                      II. Statutory and Administrative Provisions
                                         Section 167(a) permits as a depreciation deduction a
                                      reasonable allowance for the exhaustion, wear and tear, and
                                      obsolescence of property used in a trade or business. For tan-
                                      gible property, section 168(a) provides that the depreciation
                                      deduction of section 167(a) is determined by using the
                                      applicable depreciation method, recovery period, and conven-
                                      tion.
                                         Only the applicable recovery period is in issue. Under sec-
                                      tion 168(c) and (e), the classification of tangible property
                                      determines its recovery period. Section 168(i)(1) defines
                                      ‘‘class life’’ as that ‘‘which would be applicable with respect
                                      to any property as of January 1, 1986, under subsection (m)
                                      of section 167’’. Repealed in 1990, section 167(m) provided for
                                      depreciation according to ‘‘the class life prescribed by the
                                      Secretary which reasonably reflects the anticipated useful
                                      life of that class property to the industry or other group.’’
                                      Essentially, section 167(m) codified the Asset Depreciation
                                      Range system described in section 1.167(a)–11, Income Tax
                                      Regs., and in particular the system of asset guideline classes
                                      and periods (sometimes, class lives) found therein. See H.
                                      Rept. 92–533, at 30–35 (1971), 1972–1 C.B. 498, 514–516; S.
                                      Rept. 92–437, at 45–52 (1971), 1972–1 C.B. 559, 584–588.
                                         Section 167(m) confirmed the Secretary’s authority to pre-
                                      scribe class lives. Accordingly, section 1.167(a)–11(b)(4)(ii),
                                      Income Tax Regs., states: ‘‘Asset guideline classes and
                                      periods * * * [will] be established, supplemented, and
                                      revised * * *, and will be published in the Internal Revenue




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                                      Bulletin.’’ The regulation refers to Rev. Proc. 72–10, 1972–1
                                      C.B. 721, as setting forth the applicable ‘‘asset guideline
                                      classes’’. See sec. 1.167(a)–11(b)(4)(ii), Income Tax Regs. Rev.
                                      Proc. 72–10, supra, was the first of several revenue proce-
                                      dures establishing asset guideline classes, each superseding
                                      its predecessor and culminating in Rev. Proc. 87–56, supra.
                                      Rev. Proc. 87–56, supra, established the asset guideline
                                      classes in effect for purposes of this case. 3
                                         The specific asset guideline classes in issue are asset class
                                      49.14, Electric Utility Transmission and Distribution Plant,
                                      and asset class 00.3, Land Improvements. The former
                                      includes ‘‘assets used in the * * * distribution of electricity
                                      for sale’’, id., 1987–2 C.B. at 685; the latter includes
                                      ‘‘improvements directly to or added to land’’, id., 1987–2 C.B.
                                      at 677. If placed in service after December 31, 1986, assets
                                      in asset class 49.14 have a recovery period of 20 years, id.,
                                      1987–2 C.B. at 685, and assets in asset class 00.3 have a
                                      recovery period of 15 years, id., 1987–2 C.B. at 677. Property
                                      without a class life and not otherwise classified under section
                                      168(e)(2) and (3) is ‘‘7-year property’’. Sec. 168(e)(3)(C)(ii);
                                      Rev. Proc. 87–56, 1987–2 C.B. at 675. We sometimes refer to
                                      property without a class life as being in the residual class.
                                      The recovery period for 7-year property is 7 years. Sec.
                                      168(c)(1).
                                         Section 1.167(a)–11(b)(4)(iii)(b), Income Tax Regs., provides
                                      that
                                      property shall be included in the asset guideline class for the activity in
                                      which the property is primarily used. * * * Property shall be classified
                                      according to primary use even though the activity in which such property
                                      is primarily used is insubstantial in relation to all the taxpayer’s activities.
                                      * * *

                                      III. The Positions of the Parties
                                        We must first find whether street light assets are ‘‘pri-
                                      marily used’’, see sec. 1.167(a)–11(b)(4)(iii)(b), Income Tax
                                      Regs., in the ‘‘distribution of electricity for sale’’ and so prop-
                                      erly classified under asset class 49.14, see Rev. Proc. 87–56,
                                      1987–2 C.B. at 685. If they are not, then we must find
                                      whether they are land improvements under asset class 00.3.
                                        3 Congress revoked the authority of the Secretary to prescribe new class lives in the Technical

                                      and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, sec. 6253, 102 Stat. 3753.




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                                      182                135 UNITED STATES TAX COURT REPORTS                                        (176)


                                      See id., 1987–2 C.B. at 677. Respondent argues that street
                                      light assets fall within asset class 49.14; in the alternative,
                                      he argues that they fall within asset class 00.3. Petitioner
                                      argues that they fall within neither. First, we find that street
                                      light assets are not used in the distribution of electricity for
                                      sale. 4 Second, we find that they are not land improvements.
                                      Our analysis follows.
                                      IV. The Distribution of Electricity for Sale
                                           A. Introduction
                                         Petitioner bears the burden of proof, see Rule 142(a), and
                                      has carried that burden. Street light assets are ‘‘primarily
                                      used’’ to make light, not to distribute electricity. See sec.
                                      1.167(a)–11(b)(4)(iii)(b), Income Tax Regs. Moreover, that the
                                      activity of making light is insubstantial in relation to all
                                      petitioner’s activities is irrelevant. See id. We thus find that
                                      street light assets are not used in the distribution of elec-
                                      tricity for sale. 5
                                           B. Respondent’s Arguments
                                       Respondent makes six arguments to the contrary, which
                                      we shall address in turn.
                                           1. The Distribution and the Sale of Electricity
                                        Respondent argues that, under a plain reading of the
                                      statute, the regulations, and Treasury guidance, street light
                                      assets are used both in the distribution of electricity and in
                                      the sale of electricity. For that reason, notwithstanding that
                                      street light assets convert electricity to light, respondent con-
                                         4 The parties bifurcate their analyses of asset class 49.14, considering the question of the dis-

                                      tribution of electricity separately from the question of the sale of electricity. We are not con-
                                      vinced, however, that the analysis involves two distinct questions.
                                         5 To be clear, we find that no one uses street light assets in the distribution of electricity for

                                      sale. For that reason, we need not reconsider our holding in Clajon Gas Co., L.P. v. Commis-
                                      sioner, 119 T.C. 197 (2002) (Clajon I), revd. 354 F.3d 786 (8th Cir. 2004) (Clajon II), and Duke
                                      Energy Natural Gas Corp. v. Commissioner, 109 T.C. 416 (1997) (Duke Energy I), revd. 172 F.3d
                                      1255 (10th Cir. 1999) (Duke Energy II). Those cases involved essentially the same fact pattern;
                                      the taxpayer, the owner of gathering pipelines, transported natural gas under contract to opera-
                                      tors of processing plants and transmission lines. Clajon I, 119 T.C. at 199–200; Duke Energy
                                      I, 109 T.C. at 417–418. In determining the proper asset guideline class for the gathering pipe-
                                      lines, we focused on the taxpayer’s use of those assets. Clajon I, 119 T.C. at 207–213; Duke En-
                                      ergy I, 109 T.C. at 421. The Courts of Appeals, however, focused on their use in the industry.
                                      Clajon II, 354 F.3d at 789–790; Duke Energy II, 172 F.3d at 1258–1259. Because we find that
                                      no one—not petitioner, not any municipality—uses street light assets primarily for the distribu-
                                      tion of electricity for sale, we need not today address those conflicting approaches.




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                                      cludes that street light assets are used in the distribution of
                                      electricity for sale.
                                           a. The Distribution of Electricity
                                         Respondent states that, because street and area lighting is
                                      an electric service and because ‘‘a distribution system will
                                      typically include all assets used to provide electric services’’,
                                      street light assets are part of the distribution system. That
                                      argument relies completely on the statement that ‘‘a distribu-
                                      tion system will typically include all assets used to provide
                                      electric services’’, which respondent neither explains nor sup-
                                      ports. For the following reasons, we are not convinced.
                                         The parties stipulated that distribution is ‘‘the delivery of
                                      electric energy to customers’’ and ‘‘the final utility step in the
                                      provision of electric service to customers’’. That is consistent
                                      with a standard definition of distribution as ‘‘the process by
                                      which commodities get to final consumers’’. Webster’s Fourth
                                      New World College Dictionary 418 (2007). We find that defi-
                                      nition apposite and, well, illuminating. The distribution of
                                      electricity seems to us to be the process by which electricity
                                      (the commodity) gets to final consumers. 6 Respondent com-
                                      pares street light assets to service drops (the connection
                                      between a secondary distribution line and a customer). Yet
                                      service drops are fundamentally different from street light
                                      assets. Service drops are a part—the final part—of the dis-
                                      tribution of electricity, for the simple reason that service
                                      drops facilitate the process by which electricity gets to final
                                      consumers. In contrast, whereas service drops get final con-
                                      sumers electricity, street light assets get them light. 7
                                         Respondent, in the end, seems to suggest that simply
                                      because street light assets are connected to the distribution
                                         6 The Edison Electric Institute Glossary of Electric Industry Terms (April 2005) provides addi-

                                      tional support for that proposition by defining the following terms.
                                       Distribution, Electric The process of delivering electricity from convenient points on the trans-
                                      mission system to consumers.

                                                         *        *         *        *         *        *        *
                                         Distribution System The network of wires and equipment that is dedicated to delivering elec-
                                      tric energy from the transmission system to the customer’s premises. * * *
                                      (We quote the April 2005 edition because that is the edition the parties filed as a joint exhibit.)
                                        7 That some street light assets include convenience outlets does not make those street light

                                      assets distribution assets. Convenience outlets—18 feet above ground—are used mostly for deco-
                                      rative holiday lighting. They are, as intended, a convenience, and their presence does not trans-
                                      form street light assets into distribution assets.




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                                      184                135 UNITED STATES TAX COURT REPORTS                                      (176)


                                      system, they are necessarily a part thereof. We cannot agree.
                                      Street light assets are distinct from distribution assets; they
                                      have a different purpose and a different function. Moreover,
                                      street light assets can be disconnected from the distribution
                                      system without disturbing the distribution of electricity to
                                      any customer. Indeed, petitioner has sold street light assets
                                      to municipalities without affecting other customers in any
                                      way.
                                         Tenn. Natural Gas Lines, Inc. v. Commissioner, 71 T.C. 74
                                      (1978), and Ill. Cereal Mills, Inc. v. Commissioner, T.C.
                                      Memo. 1983–469, affd. on another ground 789 F.2d 1234 (7th
                                      Cir. 1986), both support petitioner. In Tenn. Natural Gas
                                      Lines, Inc. v. Commissioner, supra at 77, the taxpayer built
                                      a liquefied natural gas (LNG) storage facility to store gas in
                                      the summer (when demand is low) for use in the winter
                                      (when demand is high). The taxpayer argued that the lique-
                                      faction and vaporization equipment fell within asset class
                                      49.23, Natural gas production plant, because its function was
                                      ‘‘similar to those of a natural gas production plant.’’ Id. at 93;
                                      see Rev. Proc. 72–10, 1972–1 C.B. at 730. Specifically, the
                                      taxpayer argued that ‘‘in the liquefaction process impurities
                                      are removed from the gas, just as impurities are removed
                                      from natural gas at the wellhead.’’ Tenn. Natural Gas Lines,
                                      Inc. v. Commissioner, supra at 93. The Commissioner argued
                                      that the liquefaction and vaporization equipment fell within
                                      asset class 49.24, Trunk pipelines and related storage facili-
                                      ties, because ‘‘the natural gas which enters the facility is
                                      already in a marketable state—further purification is needed
                                      for purposes of storage, not marketing’’; therefore, ‘‘the LNG
                                      facility is nothing more than a complicated storage facility’’.
                                      Id.; see Rev. Proc. 72–10, 1972–1 C.B. at 730. The Court
                                      found for the Commissioner, stating:
                                      We note that * * * [section 1.167(a)–11(b)(4)(ii)(b), Income Tax Regs.] does
                                      not refer to the nature of the equipment or the manner in which it oper-
                                      ates; rather, this regulation emphasizes the use to which the equipment
                                      is put. In this case, the sole use of the entire LNG facility is to make nat-
                                      ural gas suitable for storage. Marketable natural gas enters the facility,
                                      is stored, and approximately the same volume of marketable natural gas
                                      leaves the facility when the gas is needed for consumption. In no way is
                                      a marketable product produced by the LNG facility—a marketable product
                                      is merely stored there. [Tenn. Natural Gas Lines, Inc. v. Commissioner,
                                      supra at 94.]




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                                         Again, section 1.167(a)–11(b)(4)(iii)(b), Income Tax Regs.,
                                      provides that ‘‘Property shall be classified according to pri-
                                      mary use even though the activity in which such property is
                                      primarily used is insubstantial in relation to all the tax-
                                      payer’s activities.’’ Here, although wires within street light
                                      assets move electricity from distribution lines all the way to
                                      the luminaires, the sole purpose and primary use of the
                                      equipment is to produce light, not to distribute electricity.
                                      Tenn. Natural Gas Lines supports petitioner.
                                         In Ill. Cereal Mills, Inc. v. Commissioner, supra, the tax-
                                      payer was in the corn milling business and ‘‘purchased and
                                      processed vast amounts of shelled corn.’’ The taxpayer
                                      argued that the grain storage tanks owned by its subsidiary
                                      fell within asset class 01.1, Machinery and equipment,
                                      including grain bins and fences but no other land improve-
                                      ments. See Rev. Proc. 72–10, 1972–1 C.B. at 723. Asset class
                                      01.1 fell within the business-activity category 01.0, Agri-
                                      culture, which included ‘‘only such assets as are * * * used
                                      in the production of crops * * * [or] the performance of agri-
                                      cultural * * * services.’’ Id. The Commissioner argued that
                                      the grain storage tanks did not fall within asset class 01.1
                                      because the taxpayer ‘‘primarily used [them] as storage for
                                      * * * raw materials for its manufacturing processes.’’ Ill.
                                      Cereal Mills, Inc. v. Commissioner, supra. The Court found
                                      for the taxpayer because the subsidiary operated the storage
                                      facility ‘‘in the same manner’’ as the previous owner. Id.
                                      Moreover, even though the taxpayer purchased ‘‘between 45
                                      and 60 percent of the grain’’ that the subsidiary stored at the
                                      storage facility, the taxpayer ‘‘would do so regardless of who
                                      owned and operated the facility.’’ Id. The Court considered
                                      the grain storage business ‘‘at most * * * merely complemen-
                                      tary’’ to the taxpayer’s corn milling and manufacturing oper-
                                      ation. Id. Importantly, the Court doubted that the Commis-
                                      sioner would have challenged that the grain storage tanks
                                      were ‘‘used in the production of crops’’ or ‘‘the performance
                                      of agricultural * * * services’’ had the storage facility been
                                      ‘‘owned and operated by someone other than’’ the taxpayer or
                                      its subsidiary. Id.
                                         Similarly, we doubt that respondent would assert that
                                      street light assets were used in the distribution of electricity
                                      for sale were they owned and operated by some entity other
                                      than an electric utility. Ill. Cereal Mills supports petitioner.




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                                      186                135 UNITED STATES TAX COURT REPORTS                                          (176)


                                           b. The Sale of Electricity
                                        Respondent implicitly argues according to the following
                                      syllogism: (1) The sale of street and area lighting is the sale
                                      of an electric service; (2) the sale of electricity is the sale of
                                      an electric service; and, therefore, (3) the sale of street and
                                      area lighting is the sale of electricity. Even assuming the
                                      truth of the premises (which we do not), that syllogism is
                                      invalid; specifically, it is an example of the fallacy of the
                                      undistributed middle. 8 In other words, an answer to
                                      respondent’s argument is that not every sale of an electric
                                      service is the sale of electricity.
                                        The syllogistic fallacy notwithstanding, petitioner uses
                                      street light assets to sell light, not electricity. Electricity is
                                      simply the raw material street light assets use to make light.
                                           2. Analogy With Asset Class 49.21
                                          Respondent asserts that asset class 49.14, Electric Utility
                                      Transmission and Distribution Plant, is analogous to asset
                                      class 49.21, Gas Utility Distribution Facilities, which
                                      ‘‘[i]ncludes gas water heaters and gas conversion equipment
                                      installed by utility on customers’ premises on a rental basis’’.
                                      Rev. Proc. 87–56, 1987–2 C.B. at 685. Respondent argues
                                      that, if asset class 49.21 includes ‘‘gas conversion equip-
                                      ment’’, then, by analogy, asset class 49.14 includes ‘‘elec-
                                      tricity conversion equipment’’ such as street light assets.
                                          Respondent’s argument is unconvincing; indeed, its logic
                                      cuts against him. The implicit premise of his argument is
                                      that the inclusion in asset class 49.21 of ‘‘gas water heaters
                                      and gas conversion equipment’’ was unnecessary. That is,
                                      asset class 49.21 would have encompassed those assets even
                                      without their explicit inclusion. Only that can explain
                                      respondent’s conclusion that asset class 49.14 includes ‘‘elec-
                                      tricity conversion equipment’’ despite the lack of any ref-
                                      erence thereto.
                                          Respondent seems to have the argument backward. Much
                                      more likely is that asset class 49.21 explicitly includes ‘‘gas
                                      conversion equipment’’ precisely because otherwise it would
                                         8 The middle term is the one (the sale of an electric service) that appears in both the major

                                      (first) and minor (second) premises. It is undistributed because neither premise describes every
                                      sale of an electric service; rather, the premises describe subsets of those sales that do not nec-
                                      essarily coincide. Therefore, the middle term fails to connect the sale of street and area lighting
                                      to the sale of electricity; both kinds of sales could separately constitute sales of electric services.




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                                      not. (Respondent does not explain the reason asset class
                                      49.21 includes the superfluous ‘‘gas conversion equipment’’.)
                                      Therefore, respondent’s argument cuts in favor of petitioner,
                                      because the absence of any reference to ‘‘electricity conver-
                                      sion equipment’’ in asset class 49.14 suggests that asset class
                                      49.14 does not include such equipment. As petitioner
                                      observes, the Commissioner had the authority to include
                                      ‘‘electricity conversion equipment’’ (or, even better, ‘‘street
                                      and area lights’’) in asset class 49.14, and he did not.
                                           3. The Business-Activity Category
                                          Asset class 49.14 falls within the business-activity category
                                      titled ‘‘Electric, Gas, Water and Steam, Utility Services’’, see
                                      Rev. Proc. 87–56, 1987–2 C.B. at 685, which respondent
                                      asserts ‘‘broadly encompasses any activity involving the sale
                                      of electricity, gas, steam, or water services.’’ Rev. Proc. 87–
                                      56, 1987–2 C.B. at 685, however, is not quite that broad,
                                      stating that the business-activity category in question
                                      ‘‘[i]ncludes assets used in the production, transmission and
                                      distribution of electricity, gas, steam, or water for sale
                                      including related land improvements.’’ Respondent, at best,
                                      misquotes the business-activity category. Regardless, barring
                                      circular arguments, the actual business-activity category in
                                      question in no way supports respondent.
                                           4. The Regulatory Framework
                                         In 1997, PP&L was a regulated utility subject to the
                                      National Electric Safety Code (NESC), the National Electric
                                      Code (NEC), the Occupational Safety and Health Administra-
                                      tion (OSHA), the Federal Energy Regulatory Commission
                                      (FERC), and the Pennsylvania Public Utilities Commission
                                      (PUC). Respondent argues that the frameworks of all five sup-
                                      port his classification of street light assets.
                                           a. The Safety Codes
                                        Three safety codes apply to street and area lighting: the
                                      NESC, the NEC, and the OSHA standards and regulations (the
                                      OSHA work rules). The purpose of the NESC is ‘‘the practical
                                      safeguarding of persons during the installation, operation, or
                                      maintenance of electric supply and communication lines and
                                      associated equipment’’; the purpose of the NEC is ‘‘the prac-




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                                      tical safeguarding of persons and property from hazards
                                      arising from the use of electricity.’’ The transition point
                                      between the NESC and the NEC is the service point. In effect,
                                      the NESC governs assets (including street light assets) that
                                      electric utilities control, and the NEC governs assets
                                      (including street light assets) that customers control. The
                                      OSHA work rules have a similar internal division: One set of
                                      rules, 29 C.F.R. sec. 1910.269 (1997), applies to electric
                                      power generation, transmission, and distribution; and
                                      another, 29 C.F.R. sec. 1910.302 (1997), applies to electric
                                      utilization systems. Again, the dividing line is control.
                                         First, the NESC (and not the NEC) controls here because the
                                      NESC governs street light assets that PP&L controlled. Under
                                      the NESC, ‘‘utilization equipment’’ includes ‘‘[e]quipment,
                                      devices, and connected wiring that utilize electric energy for
                                      mechanical, chemical, heating, lighting, testing, or similar
                                      purposes and are not a part of supply equipment, supply
                                      lines, or communication lines.’’ ‘‘Electric supply equipment’’
                                      includes ‘‘[e]quipment that produces, modifies, regulates, con-
                                      trols, or safeguards a supply of electric energy.’’ Respondent
                                      argues that street light assets are electric supply equipment
                                      because they ‘‘modify, regulate, and control the supply of
                                      electricity to customers.’’ Such a broad reading of electric
                                      supply equipment not only ignores but also guts the defini-
                                      tion of utilization equipment. What could possibly fall within
                                      the latter given respondent’s broad reading of the former?
                                      Respondent is incorrect; we find that street light assets use
                                      ‘‘electric energy for * * * lighting’’. For that reason, under
                                      the NESC, street light assets are utilization equipment. The
                                      NESC supports petitioner.
                                         Second, the OSHA work rules that govern street light assets
                                      that PP&L controlled are those that apply to electric power
                                      generation, transmission, and distribution. The two sets of
                                      OSHA work rules are intended to separate those assets that
                                      electric utilities generally control (‘‘electric power generation,
                                      control, transformation, transmission, and distribution lines
                                      and equipment’’, 29 C.F.R. sec. 1910.269(a)(1)(i)) from those
                                      assets that others generally control (‘‘electrical installations
                                      and utilization equipment installed or used within or on
                                      buildings, structures, and other premises’’, 29 C.F.R. sec.
                                      1910.302(a)(1)). Given the problem we here face, we find the
                                      OSHA work rules without probative—and certainly without




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                                      legal—value. 9               The    OSHA        work        rules        do        not   support
                                      respondent.
                                           b. The Accounting Regulations
                                         The FERC Uniform System of Accounts sets forth a
                                      standard system of accounting used by public utilities and
                                      other entities that, among other things, enables Federal,
                                      State, and municipal regulators to compare those public utili-
                                      ties and to set retail and wholesale rates for electricity. FERC
                                      regulated PP&L’s wholesale rates. (PUC regulated PP&L’s
                                      retail rates.) PP&L recorded street light assets used for street
                                      lighting under FERC account 373, Street Lighting and Signal
                                      Systems, and recorded street light assets used for area
                                      lighting under FERC account 371, Installations on Customers’
                                      Premises. FERC accounts 371 and 373 both fall under the
                                      heading Distribution Plant.
                                         PP&L reported its street and area lighting as the sale of
                                      kilowatt-hours, the basic unit of measurement for the supply
                                      of electricity. PP&L charged retail customers according to the
                                      electric rates that the applicable Pennsylvania regulatory
                                      agencies (primarily, PUC) established. In 1997, PP&L charged
                                      so-called bundled rates, meaning that every rate included the
                                      cost of generation, transmission, distribution, and all other
                                      cost components; that is, PP&L did not charge separately for
                                      each cost component. In 1997, street and area lighting con-
                                      stituted approximately 0.6 percent of PP&L’s total electricity
                                      sales.
                                         Respondent insists that, although ‘‘not determinative’’, the
                                      inclusion of street light assets in FERC accounts under the
                                      heading Distribution Plant is ‘‘persuasive’’ that both the elec-
                                      tric utility industry and FERC consider street light assets ‘‘to
                                      be primarily used for distribution.’’ In support, respondent
                                         9 In Saginaw Bay Pipeline Co. v. United States, 338 F.3d 600, 605–606 n.9 (6th Cir. 2003),

                                      the Court of Appeals for the Sixth Circuit rejected the reliance of the trial court on a case of
                                      the Court of Appeals for the Fifth Circuit. In that case, the Court of Appeals for the Fifth
                                      Circuit ‘‘had construed federal natural gas pipeline safety regulations to require that ‘gathering’
                                      lines must attach directly to wellheads.’’ Id. The Court of Appeals for the Sixth Circuit not only
                                      found the construction of the safety regulation to be ‘‘facially open to question’’, but noted that
                                      ‘‘any persuasive weight’’ the case might have ‘‘would be restricted to construction of the laws
                                      governing natural gas pipeline safety’’. Id. ‘‘No evident rationale supports the application of a
                                      safety regulation’s judicially-refined definition of ‘gathering pipeline’ to the income tax deprecia-
                                      tion regulations, given the total dissimilarity of the purposes of the two sets of standards.’’ Id.
                                      We are similarly reluctant to consider electric safety regulations relevant to those same income
                                      tax depreciation regulations.




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                                      invokes Duke Energy Natural Gas Corp. v. Commissioner,
                                      172 F.3d 1255 (10th Cir. 1999), revg. 109 T.C. 416 (1997). In
                                      that case, the Court of Appeals for the Tenth Circuit found
                                      the ‘‘distinction that FERC makes between gathering and
                                      transmission lines * * * persuasive that the gas industry
                                      and the regulatory body overseeing it consider gathering sys-
                                      tems to be used for the activity of production, rather than
                                      transportation.’’ Id. at 1262.
                                         Respondent has failed to convince us that the inclusion of
                                      street light assets in FERC accounts under the heading Dis-
                                      tribution Plant suggests anything about the proper classifica-
                                      tion of those assets for purposes of depreciation. In 1922, the
                                      Federal Power Commission (FERC’s predecessor) adopted the
                                      first Uniform System of Accounts, which included account
                                      357, Street lighting equipment, under the heading Utilization
                                      Capital. In 1936, the Federal Power Commission revised the
                                      Uniform System of Accounts, eliminating the separate func-
                                      tional groupings for Utilization Capital (and for Joint Trans-
                                      mission and Distribution Capital). We are not convinced that
                                      the change represented anything more than an attempt to
                                      simplify the regulatory regime.
                                         That FERC required PP&L to account for street and area
                                      lighting revenues as sales of electricity does not necessarily
                                      mean that service is best characterized as the sale of elec-
                                      tricity; it could simply mean that the distinction was not
                                      sufficiently important to be made for regulatory purposes.
                                      Indeed, given that in 1997 street and area lighting con-
                                      stituted less than 1 percent of PP&L’s total electricity sales,
                                      the latter explanation strikes us as highly plausible. 10
                                         The Supreme Court has long recognized ‘‘the vastly dif-
                                      ferent objectives that financial and tax accounting have.’’
                                      Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 542
                                      (1979).
                                         10 The relevant FERC account is account 444, Public Street and Highway Lighting. There are

                                      two subheadings under the heading Operating Revenue; viz, (1) Sales of Electricity and (2)
                                      Other Operating Revenues. Account 444 is under the first subheading, Sales of Electricity. Ac-
                                      count 444 ‘‘[includes] the net billing for electricity supplied and services rendered for the pur-
                                      poses of lighting streets, highways, parks and other public places * * * for municipalities or
                                      other divisions or agencies of state or Federal Governments.’’ That FERC included account 444
                                      under Sales of Electricity strikes us as sensible; electricity is the critical raw material required
                                      for street and area lighting, and reporting street and area lighting revenues as the sale of elec-
                                      tricity surely simplifies the accounting.




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                                      The primary goal of financial accounting is to provide useful information
                                      to management, shareholders, creditors, and others properly interested;
                                      the major responsibility of the accountant is to protect these parties from
                                      being misled. The primary goal of the income tax system, in contrast, is
                                      the equitable collection of revenue; the major responsibility of the Internal
                                      Revenue Service is to protect the public fisc. * * * [Id.]

                                      We find the FERC Uniform System of Accounts to be of little
                                      relevance in answering the question before us.
                                           5. PP&L’s Treatment of Street Light Assets
                                         Respondent argues that PP&L treated street light assets
                                      no differently from other distribution assets, and thus he
                                      concludes that street light assets are distribution assets. 11
                                      First, ‘‘PP&L’s transmission and distribution personnel oper-
                                      ated and maintained PP&L’s street and area lighting’’.
                                      Second, ‘‘PP&L’s distribution specifications and instruction
                                      manuals incorporate specifications and engineering instruc-
                                      tions for street and area lighting.’’ Third, ‘‘PP&L warehouses
                                      its Street Light Assets at its System Facilities Center in
                                      Hazelton, Pennsylvania, and commingles the Street Light
                                      Assets with other distribution materials.’’ Fourth, ‘‘in identi-
                                      fying Street Light Assets * * * for internal use, PP&L
                                      groups Street Light Assets with its distribution facilities.’’
                                      Surely what PP&L did was for convenience. Respondent’s
                                      argument is of no avail.
                                           6. The Intent of Treasury
                                           Respondent argues:
                                      Treasury designed the asset classification system to be as comprehensive
                                      as possible. Electric utility street [and area] lighting predates the asset
                                      classification system by more than half a century. * * * It is unlikely that
                                      Treasury simply ignored street [and area] lighting or intended to exclude
                                      street [and area] lighting from the applicable classes.

                                                                *   *   *   *    *   *    *
                                      * * * the asset classification system addresses all the industry’s primary
                                      activities, including street and area lighting. * * * As a matter of histor-
                                      ical fact and industry practice, street and area lighting is part of distribu-
                                      tion. * * * Treasury therefore intended for the classification system to
                                      incorporate street and area lighting as part of a utility’s distribution
                                      activity.

                                        11 That argument, if stated as a syllogism, is another example of the fallacy of the undistrib-

                                      uted middle. See supra note 8 and accompanying text.




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                                      Respondent makes a plausible argument yet presents no evi-
                                      dence in its support. Even if Treasury intended asset class
                                      49.14 to include street light assets, however, a preponderance
                                      of the evidence supports our conclusion that asset class 49.14
                                      does not include those assets. Again, had the Commissioner
                                      explicitly included ‘‘electricity conversion equipment’’ in asset
                                      class 49.14, just as he included ‘‘gas conversion equipment’’
                                      in asset class 49.21, we might answer the question before us
                                      differently. See Rev. Proc. 87–56, 1987–2 C.B. at 685. For
                                      whatever reason, he did not. Because street light assets are,
                                      in fact, primarily used to provide a lighting service and not
                                      to distribute electricity for sale, to resolve any ambiguity
                                      about the intent of the Treasury against respondent is under
                                      the circumstances fair and proper.
                                           C. Conclusion
                                         We find that petitioner has carried its burden of proof.
                                      Street light assets are ‘‘primarily used’’ to make light, not to
                                      distribute electricity. See sec. 1.167(a)–11(b)(4)(iii)(b), Income
                                      Tax Regs. Quite simply, street light assets provide light for
                                      public safety. Moreover, that that activity is insubstantial in
                                      relation to all petitioner’s activities is irrelevant. See id. We
                                      thus find that street light assets are not used in the distribu-
                                      tion of electricity for sale.
                                      V. Land Improvements
                                           A. Introduction
                                         Although at trial respondent waived any argument that
                                      street light assets fell into any asset class other than asset
                                      class 49.14, on brief respondent suggested for the first time
                                      that ‘‘in the hands of a * * * taxpayer that does not sell elec-
                                      tricity, Street Light Assets constitute a land improvement.’’
                                      Because respondent appeared to raise a new argument on
                                      brief, we ordered the parties to address the question.
                                         In his supplemental brief, respondent argues that if street
                                      light assets do not fall within asset class 49.14, then they fall
                                      within asset class 00.3, Land Improvements, which includes
                                      ‘‘improvements directly to or added to land’’. See Rev. Proc.
                                      87–56, 1987–2 C.B. at 677 (‘‘Examples of * * * [land
                                      improvements] might include sidewalks, roads, canals, water-
                                      ways, drainage facilities, sewers * * *, wharves and docks,




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                                      bridges, fences, landscaping, shrubbery, or radio and tele-
                                      vision transmitting towers.’’). Petitioner denies that street
                                      light assets are land improvements. We agree with peti-
                                      tioner.
                                         Because he raises a new argument on brief that strikes us
                                      as contrary to his principal argument, respondent bears the
                                      burden of proving that, if street light assets do not fall
                                      within asset class 49.14, then they fall within asset class
                                      00.3. See Rule 142(a); see also Shea v. Commissioner, 112
                                      T.C. 183 (1999). Respondent does not argue otherwise.
                                           B. Analysis
                                         In Trentadue v. Commissioner, 128 T.C. 91, 99 (2007), we
                                      described the standards applicable to classifying assets as
                                      land improvements. We stated: ‘‘Generally, the [applicable]
                                      class life categories cover two broad groupings—permanent
                                      improvements to real property, and machinery and equip-
                                      ment that is not a real property improvement.’’ Id. at 98. We
                                      addressed the proper classification of certain assets the tax-
                                      payers used in their vineyard: trellises for the grapevines,
                                      the drip irrigation system, and a well. Id. at 93–97. In our
                                      analysis, we applied the guidelines we had derived in
                                      Whiteco Indus., Inc. v. Commissioner, 65 T.C. 664 (1975)
                                      (finding that, for purposes of the investment tax credit, out-
                                      door advertising signs constituted tangible personal property,
                                      not land improvements). Although the guidelines comprise
                                      six factors,
                                      their primary focus is the question of the permanence of depreciable prop-
                                      erty and the damage caused to it or to realty upon removal of the depre-
                                      ciable property. No one factor has been considered to be determinative, and
                                      the guidelines have been used merely as an aid to deciding whether a par-
                                      ticular property is or is not a permanent improvement to real property.
                                      [Trentadue v. Commissioner, supra at 99.]

                                         As to street lights bolted to wood poles and area lights
                                      bolted to buildings, we find that, under the Whiteco Indus.
                                      guidelines, those street light assets are not affixed to any-
                                      thing in an inherently permanent way. Cf. Standard Oil Co.
                                      v. Commissioner, 77 T.C. 349, 406 (1981) (‘‘Without extensive
                                      consideration, it is clear to us that, under the standards
                                      enunciated in the Whiteco case, the sign heads and light fix-
                                      tures are not affixed to anything in an inherently permanent




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                                      way.’’); Musco Sports Lighting, Inc. v. Commissioner, T.C.
                                      Memo. 1990–331 (‘‘The lights in the instant case were merely
                                      bolted to the poles so, like the signs and lights in Standard
                                      Oil, they were not affixed to anything in an inherently
                                      permanent way.’’), affd. 943 F.2d 906 (8th Cir. 1991). 12 As to
                                      street lights mounted on aluminum, steel, and boulevard
                                      fiberglass poles, 13 we discuss each Whiteco Indus. factor in
                                      turn.
                                         1. ‘‘Is the property capable of being moved, and has it in
                                      fact been moved?’’ Whiteco Indus., Inc. v. Commissioner,
                                      supra at 672.
                                         Street light assets are capable of being moved, and they
                                      have in fact been moved. Aluminum, steel, and boulevard
                                      fiberglass poles are bolted to concrete foundations. The poles
                                      can be quickly removed by loosening the bolts and are gen-
                                      erally reused in other installations. Indeed, petitioner’s
                                      engineering instructions for street and area lighting directs
                                      that ‘‘[l]ow-mounted fluted (boulevard) standards shall not be
                                      scrapped.’’ Moreover, in many cases the foundations are pre-
                                      cast concrete ‘‘plugs’’ that can be reused.
                                         Street light assets have been moved and reused, and peti-
                                      tioner’s practice is to store used street light assets for future
                                      use. Accordingly, the first factor suggests that street light
                                      assets are not land improvements. Cf. Trentadue v. Commis-
                                      sioner, supra at 100 (finding that the first factor suggested
                                      that trellises were not land improvements because they had
                                      been moved and reused and the drip irrigation system was
                                      a land improvement because few of its components could be
                                      reused if removed); Standard Oil Co. v. Commissioner, supra
                                      at 407 (finding that poles for service station signs and
                                      lighting ‘‘designed to be bolted to * * * concrete foundations
                                      were moved from place to place * * * [and] were certainly
                                      capable of being removed, stored, and reinstalled at other
                                         12 Respondent cites Metro Natl. Corp. v. Commissioner, T.C. Memo. 1987–38, for the propo-

                                      sition that sprinkler heads are an essential part of an underground water system even though
                                      they are easily disconnected from that system. Because sprinkler heads are functionally ‘‘insepa-
                                      rable from, and give utility to, the underground pipes’’, they are part of the underground water
                                      system, an inherently permanent structure. Id. Respondent argues that street light assets are
                                      analogous to sprinkler heads. We disagree. Street light assets are not functionally inseparable
                                      from, and do not give utility to, distribution lines. (Service drops, however, are functionally in-
                                      separable from, and do give utility to, those lines. Thus, service drops, and not street light as-
                                      sets, are analogous to sprinkler heads. See supra sec. IV.B.1.a. of this report, in which we dis-
                                      cuss the difference between service drops and street light assets.)
                                         13 See infra note 14 for a discussion of nonboulevard fiberglass poles.




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                                      locations’’); Whiteco Indus., Inc. v. Commissioner, supra at
                                      672 (finding that the first factor suggested the signs were not
                                      land improvements because they ‘‘are capable of being moved
                                      and have in fact been moved’’).
                                         2. ‘‘Is the property designed or constructed to remain
                                      permanently in place?’’ Whiteco Indus., Inc. v. Commissioner,
                                      supra at 672.
                                         Although street light assets can remain in place for their
                                      entire useful lives, they are both designed and constructed to
                                      be moved if necessary. Notwithstanding that street light
                                      assets are built to last, they are also built to be moved; they
                                      are not meant to remain permanently in place. Accordingly,
                                      the second factor suggests that street light assets are not
                                      land improvements. Cf. Trentadue v. Commissioner, supra at
                                      100–101 (finding that the second factor suggested that
                                      trellises were not land improvements because they were
                                      ‘‘changed or modified to accommodate the growth or the
                                      feeding of the vines’’ and the drip irrigation system was a
                                      land improvement because, with a few exceptions, ‘‘removal
                                      of the pipes and tubes is not easily accomplished, and so, for
                                      all practical purposes, they are permanently embedded in the
                                      ground’’); Standard Oil Co. v. Commissioner, supra at 407–
                                      408 (finding that poles ‘‘designed to be bolted to the appro-
                                      priate concrete foundations were, because of such design,
                                      meant to be movable * * * [and thus] were not designed to
                                      remain permanently in place’’); Whiteco Indus., Inc. v.
                                      Commissioner, 65 T.C. at 672 (finding that the second factor
                                      suggested that the signs were not land improvements
                                      because they ‘‘are designed or constructed to last for the term
                                      of a contract * * * [(an average of 5 years), after which] the
                                      sign structure requires substantial renovation’’).
                                         3. ‘‘Are there circumstances which tend to show the
                                      expected or intended length of affixation, i.e., are there cir-
                                      cumstances which show that the property may or will have
                                      to be moved?’’ Whiteco Indus., Inc. v. Commissioner, supra at
                                      672.
                                         Petitioner does not intend, and cannot realistically expect,
                                      street light assets to remain permanently in place. Petitioner
                                      often needs to move street light assets before the end of their
                                      useful lives, and thus the affixation of street light assets is
                                      inherently temporary. For example, street light assets are
                                      moved when streets and sidewalks are redone. Accordingly,




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                                      the third factor suggests that street light assets are not land
                                      improvements. Cf. Trentadue v. Commissioner, 128 T.C. at
                                      101 (finding that the third factor suggested that trellises and
                                      the drip irrigation system were land improvements because
                                      they were expected to service the grapevines during their
                                      useful lives); Standard Oil Co. v. Commissioner, 77 T.C. at
                                      408 (‘‘The poles designed to be bolted to the appropriate
                                      foundations were so designed because there are many cir-
                                      cumstances that show that such poles might or would have
                                      to be moved.’’); Whiteco Indus., Inc. v. Commissioner, supra
                                      at 672–673 (finding that the third factor suggested that the
                                      signs were not land improvements because the taxpayer
                                      ‘‘does not intend, nor could it realistically expect, the signs
                                      to remain permanently in place’’).
                                         4. ‘‘How substantial a job is removal of the property and
                                      how time-consuming is it? Is it ‘readily removable’ ? ’’ Whiteco
                                      Indus., Inc. v. Commissioner, supra at 673.
                                         The removal of street light assets is a relatively quick and
                                      easy process. Aluminum, steel, and boulevard fiberglass poles
                                      need simply to be unbolted from their concrete foundations,
                                      which are themselves often easily removed from the ground.
                                      Accordingly, the fourth factor suggests that street light
                                      assets are not land improvements. Cf. Trentadue v. Commis-
                                      sioner, supra at 102 (finding that the fourth factor was neu-
                                      tral as to trellises and the drip irrigation system because the
                                      removal of both ‘‘would be time consuming if the components
                                      were being salvaged for future use’’ but otherwise would be
                                      ‘‘quick and inexpensive’’); Standard Oil Co. v. Commissioner,
                                      supra at 409 (finding that poles that took up to ‘‘24 man-
                                      hours of jobsite labor’’ to remove were ‘‘readily removable’’);
                                      Whiteco Indus., Inc. v. Commissioner, supra at 673 (finding
                                      that the fourth factor suggested that the signs were not land
                                      improvements because the ‘‘disassembly and removal of a
                                      sign is a relatively quick and easy process’’); JFM, Inc. &
                                      Subs. v. Commissioner, T.C. Memo. 1994–239 (‘‘Although the
                                      [gasoline pump] canopy components are collectively formi-
                                      dable, the whole structure can be erected * * * or disman-
                                      tled and moved in a few days.’’).
                                         5. ‘‘How much damage will the property sustain upon its
                                      removal?’’ Whiteco Indus., Inc. v. Commissioner, supra at
                                      673.




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                                      (176)                 PPL CORP. & SUBS. v. COMMISSIONER                                     197


                                         The removal of street light assets does not damage them.
                                      Removing aluminum, steel, and boulevard fiberglass poles
                                      from concrete foundations involves simply loosening the
                                      bolts. No damage to street light assets or to any other prop-
                                      erty occurs. After the removal of the precast concrete ‘‘plugs’’,
                                      the resulting hole is filled with earth. Any disturbance is
                                      minimal. Accordingly, the fifth factor suggests that street
                                      light assets are not land improvements. Cf. Trentadue v.
                                      Commissioner, supra at 103 (finding that the fifth factor was
                                      neutral as to trellises and the drip irrigation system because
                                      their careful removal would mean great cost and small dam-
                                      age, and their quick removal would mean small cost and
                                      great damage); Whiteco Indus., Inc. v. Commissioner, supra
                                      at 673 (finding that the fifth factor suggested that the signs
                                      were not land improvements because ‘‘[m]uch of the sign
                                      assembly is not damaged when it is moved’’); Fox Photo, Inc.
                                      v. Commissioner, T.C. Memo. 1990–348 (finding that mod-
                                      ular, 1-hour photo labs, located predominantly in shopping
                                      center parking lots, ‘‘could be moved in 12 to 18 hours by five
                                      men in 2 to 3 days sustaining damage that was cheaper to
                                      repair than building a new lab’’).
                                         6. ‘‘What is the manner of affixation of the property to the
                                      land?’’ Whiteco Indus., Inc. v. Commissioner, supra at 673.
                                         Aluminum, steel, and boulevard fiberglass poles are bolted
                                      to concrete foundations; they are not permanently affixed to
                                      the land. Accordingly, the sixth factor suggests that street
                                      light assets are not land improvements. Cf. Trentadue v.
                                      Commissioner, supra at 103 (finding that the sixth factor
                                      suggested that the trellises, not set in concrete and so easily
                                      removed, were not land improvements and that the drip
                                      irrigation system, buried in the ground and not easily
                                      removed, was a land improvement); Whiteco Indus., Inc. v.
                                      Commissioner, supra at 673 (finding that the sixth factor
                                      suggested that the signs were not land improvements
                                      because, even though the poles were set in concrete, the
                                      poles ‘‘can easily be removed from the ground, and as a
                                      matter of practice, they are so removed’’).
                                           C. Conclusion
                                        Every Whiteco Indus. factor suggests that street light
                                      assets bolted to concrete foundations are not land improve-




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                                      198                135 UNITED STATES TAX COURT REPORTS                                      (176)


                                      ments. There is not much evidence regarding nonboulevard
                                      fiberglass poles. 14 Yet respondent bears the burden of proof
                                      as to whether street light assets fall within asset class 00.3,
                                      and the parties address all street light assets as one indivis-
                                      ible group. We thus find that, for all street light assets,
                                      respondent has failed to carry his burden. We find that street
                                      light assets are not land improvements and that is consistent
                                      with our findings in several other cases. See Trentadue v.
                                      Commissioner, 128 T.C. at 106–107 (finding that trellises
                                      were not land improvements, but that the drip irrigation
                                      system was a land improvement); Standard Oil Co. v.
                                      Commissioner, 77 T.C. at 409 (finding that poles bolted to
                                      concrete foundations that held signs (ranging from 15 to 17
                                      feet and 90 to 110 feet) and lights were not land improve-
                                      ments); Whiteco Indus., Inc. v. Commissioner, 65 T.C. at 673
                                      (finding that wood advertising signs were not land improve-
                                      ments); JFM, Inc. & Subs. v. Commissioner, supra (finding
                                      that large gasoline pump canopies were not land improve-
                                      ments); Fox Photo, Inc. v. Commissioner, supra (finding that
                                      modular, one-hour photo labs were not land improvements).
                                      VI. Conclusion
                                         Street light assets are neither assets used in the distribu-
                                      tion of electricity for sale nor land improvements. Thus,
                                      street light assets do not fall within asset class 49.14 or asset
                                      class 00.3; rather, street light assets fall within the residual
                                      class. Street light assets are property without a ‘‘class life’’
                                      and not otherwise classified under section 168(e)(2) and (3);
                                      they     are,    therefore,   ‘‘7-year  property’’.   See    sec.
                                      168(e)(3)(C)(ii); Rev. Proc. 87–56, 1987–2 C.B. at 675. As
                                      such, street light assets have a recovery period of 7 years.
                                         14 Nonboulevard fiberglass poles are embedded approximately 5 feet in the ground and

                                      backfilled with cement, stone, and tamped earth. The cement foundations cannot be reused.
                                      Whether the fiberglass poles themselves can be reused is not clear. In Standard Oil Co. v. Com-
                                      missioner, 77 T.C. 349, 407–409 (1981), we faced an almost identical situation, albeit in the con-
                                      text of the investment tax credit. In that case, in the absence of evidence, we stated that poles
                                      ‘‘embedded in concrete were probably movable’’, ‘‘seem as capable of being moved as those in
                                      Weirick v. Commissioner, [62 T.C. 446 (1974)]’’, ‘‘were possibly readily removable’’, and would
                                      sustain ‘‘possibly minimal’’ damage upon removal. Standard Oil Co. v. Commissioner, supra at
                                      407–409. We found that the taxpayer had
                                      failed to prove that the poles and * * * the concrete into which the [poles were] embedded are
                                      not ‘‘inherently permanent structures,’’ though, with proof such as that which the Court of
                                      Claims had before it in * * * [Southland Corp. v. United States, 222 Ct. Cl. 22, 611 F.2d 348
                                      (1979) (involving 20-foot poles holding signs outside ‘‘7-Eleven’’ stores)], we would likely find
                                      that they are not ‘‘inherently permanent structures.’’ [Id. at 409.]




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                                      (176)                 PPL CORP. & SUBS. v. COMMISSIONER                                     199


                                      See sec. 168(c)(1). For that reason, PP&L properly reclassified
                                      street light assets, and respondent incorrectly disallowed
                                      petitioner’s negative adjustment and depreciation consistent
                                      therewith.

                                                                               f




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