                                      ROBERT            AND   KIMBERLY BROZ, PETITIONERS v. COMMISSIONER
                                                            OF INTERNAL REVENUE, RESPONDENT
                                                        Docket No. 21629–06.                           Filed July 7, 2011.

                                                 Ps were shareholders in a wholly owned S corporation (S)
                                               engaged in providing wireless cellular service. The parties dis-
                                               pute the length in years of the recovery period that S must
                                               use to calculate its annual depreciation deduction for the
                                               wireless cellular assets. Wireless cellular assets include
                                               antenna support structures, cell site equipment and leased
                                               digital equipment. Held: We apply the plain language of sec.
                                               168, I.R.C., in interpreting classification issues of first impres-
                                               sion. The plain language of Rev. Proc. 87–56, 1987–2 C.B.
                                               674, the revenue procedure in effect for the years at issue, is
                                               unambiguous as it applies to S’s wireless cellular assets. Held:
                                               The antenna support structures fall within asset class 48.14
                                               with a recovery period of 15 years, as specified in Rev. Proc.

                                                                                                                                    25




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                                               87–56, supra. The cell site equipment, excluding the switch,
                                               and the leased digital equipment fall within asset class 48.12
                                               with a recovery period of 10 years. Id.

                                        Stephen W. Feldman and Eric T. Weiss, for petitioners.
                                        Meso T. Hammoud, Elizabeth Rebecca Edberg, and Steven
                                      G. Cappellino, for respondent.
                                         KROUPA, Judge: Respondent determined over $16 million of
                                      deficiencies 1 in petitioners’ Federal income tax for 1996,
                                      1998, 1999, 2000 and 2001 (the years at issue).
                                         In this report we decide whether RFB Cellular, Inc. (RFB),
                                      an S corporation petitioners wholly owned, is entitled to cer-
                                      tain depreciation deductions for wireless cellular equipment.
                                      Specifically, we must determine whether petitioners properly
                                      classified antenna support structures, cell site equipment
                                      and leased digital equipment for depreciation purposes. 2 We
                                      find that they did not. A forthcoming report will address the
                                      remaining seven issues.

                                                                          FINDINGS OF FACT

                                        Some of the facts have been stipulated and are so found.
                                      We incorporate the stipulation of facts and the accompanying
                                      exhibits by this reference. Petitioners resided in Gaylord,
                                      Michigan at the time they filed the petition.
                                      Overview of RFB Cellular, Inc.
                                        Petitioner husband (petitioner) formed RFB Cellular, Inc.
                                      (RFB), a wholly owned S corporation, in 1991. RFB was
                                      engaged in providing wireless cellular service during the
                                      years at issue. Petitioner had many years of experience with
                                      the cellular industry before he formed RFB. He was president
                                      of Cellular Information Systems (CIS), a cellular company.
                                      Petitioner also served as a board member to the Cellular
                                      Telephone and Internet Association (CTIA) and was involved
                                      with lobbying efforts on behalf of the cellular industry.

                                        1 Respondent determined a $100,003 deficiency for 1996, a $4,671,608 deficiency for 1998, a

                                      $3,385,533 deficiency for 1999, a $4,954,056 deficiency for 2000, and a $3,395,214 deficiency for
                                      2001.
                                        2 We note that the Internal Revenue Service has since provided updated class life guidance

                                      for the ever-changing cellular service industry. Rev. Proc. 2011–22, 2011–18 I.R.B. 737, applies
                                      for years after the years at issue.




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                                      Overview of the Cellular Industry
                                         The Federal Communications Commission (FCC) admin-
                                      isters the radio-frequency spectrum on which cellular car-
                                      riers operate wireless networks. The FCC issues licenses for
                                      wireless networks to operate on specific broadcast fre-
                                      quencies on the spectrum. The licenses are further limited to
                                      a specific geographic area.
                                         A cellular network is operated on a grid that divides the
                                      geographic region covered by the license into smaller cells
                                      (cell sites). The size of the cells depends on the anticipated
                                      amount of cellular traffic. In urban areas, the cells are
                                      smaller to maximize network capacity. In rural areas where
                                      capacity is less of a concern, such as those areas in Michigan
                                      where RFB operated its cellular networks, the cells are larger
                                      to provide more coverage. The cell site structure enables the
                                      cellular carrier to reuse a limited number of broadcast fre-
                                      quencies across the geographic region.
                                         RFB provided cellular service to two license areas, and
                                      operated approximately 75 cell sites, on the Michigan penin-
                                      sula during the years at issue. Most of RFB’s revenue came
                                      from roaming charges for the use of the Michigan networks.
                                      RFB would make its networks available to customers of other
                                      carriers who were traveling within the geographic area of the
                                      licenses. RFB and other carriers sent their receivables and
                                      payables to a clearinghouse that would sort out the charges
                                      and payments and issue a bill to each carrier.
                                      Operation of the Cellular Network
                                        The three basic components of a cellular network are (1)
                                      the base station, which includes towers, antennas and
                                      related electronic equipment; (2) transmission facilities
                                      between the base station and the switch; and (3) the switch.
                                      Cellular carriers added onto the existing assets to update
                                      from analog to digital cellular technology.
                                           A. The Antenna Support Structures
                                        Signals from the cellular user travel from the cellphone to
                                      the antenna. The antenna is mounted on a free-standing
                                      tower so that it can transmit and receive signals across great
                                      distances. The height of the tower also reduces interference
                                      with radio signals from trees and tall buildings. The tower




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                                      is strong enough to support the weight of the antenna and
                                      related equipment, plus accumulated ice and snow. The
                                      tower is also built to withstand high winds.
                                        RFB constructed some of its towers on top of preexisting
                                      structures to prevent the obstruction of the antennas. RFB
                                      used the same towers for many years, and it would simply
                                      switch the antenna and related equipment when it stopped
                                      working or became obsolete.
                                           B. The Base Station
                                         The base station is located at or near the base of the tower.
                                      The cell phone searches for a signal from the closest base
                                      station before a call is made. The signal from the base sta-
                                      tion is what gives the cell phone service or ‘‘bars’’. The cell
                                      phone then sends a radio signal to the base station identi-
                                      fying the user and the user’s location. A radio transmitter in
                                      the cell phone converts the user’s speech into strings of ones
                                      and zeroes that can be transmitted as radio signals to the
                                      antenna.
                                         The base station contains a two-way radio that converts
                                      the radio signal from the cellphone to a form that can be
                                      transmitted over wire or optical fiber to the switch. The radio
                                      also converts the signal from the switch to a radio signal that
                                      can be transmitted to the cellular user. The radio contains
                                      some computerized parts, including a computerized compo-
                                      nent that amplifies the radio signals. The base station con-
                                      tains some switching software so it can route the calls if the
                                      switch no longer functions.
                                         The base station is housed in a small equipment shelter.
                                      RFB typically leased the land beneath the equipment shel-
                                      ters for 25 years, with 5-year renewals. The equipment
                                      shelters were prefabricated from concrete slabs and were
                                      approximately 8 to 10 feet wide by 10 to 12 feet long. The
                                      equipment shelters were very heavy, and, like the towers,
                                      they were designed to remain in service for many years. The
                                      equipment shelters did not need to be replaced when the
                                      base station equipment was replaced. Instead, RFB would
                                      simply switch out the base station equipment when it no
                                      longer functioned or became obsolete. The equipment shelters
                                      had air conditioning, temperature alarm systems, fire/smoke
                                      alarm systems, and intruder alarm systems.




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                                           C. The Switch
                                         The switch, which is the technological descendant of the
                                      switchboard, is a computer system that routes the cellular
                                      calls. Wireless calls are typically transmitted to the switch
                                      from the base station over a landline or radio network. The
                                      switch is connected to the landline and other carriers. It
                                      determines how to route the call based on the number that
                                      is dialed. The switch also maintains billing records and mon-
                                      itors the base stations. One switch can serve as many as 200
                                      base stations.
                                      The Transition From Analog to Digital Technology
                                         RFB initially provided analog cellular service. It began,
                                      however, updating its equipment to provide digital service.
                                      The digital equipment could handle approximately eight
                                      times as many calls as the analog service. The digital tech-
                                      nology also provided customers with additional services.
                                      These additional services included the ability to text, send
                                      pictures, download ring tones and access the Internet. More-
                                      over, the FCC eventually required that all cellular carriers
                                      phase out analog service and upgrade to newer digital tech-
                                      nology.
                                         RFB acquired and installed the leased digital equipment so
                                      it was ready for use in 2000. RFB decommissioned its analog
                                      equipment soon after the FCC mandated the switch to digital.
                                      RFB’s Returns for the Years at Issue
                                         RFB claimed depreciation deductions for wireless cellular
                                      equipment during the years at issue. RFB did not specifically
                                      identify the items being depreciated but instead classified
                                      items into generic categories, such as ‘‘switch equipment’’
                                      and ‘‘cellular equipment’’.
                                         RFB included all costs for towers, antennas, equipment
                                      shelters and related land improvements in the ‘‘antenna sup-
                                      port structure’’ asset class. RFB depreciated the antenna sup-
                                      port equipment over seven years under asset class 48.32. RFB
                                      classified a wide variety of equipment, including the switch
                                      and the base station, as ‘‘cell site equipment.’’ RFB depre-
                                      ciated the cell site equipment over five to seven years under
                                      asset class 48.121. RFB depreciated the leased digital equip-
                                      ment over five years under asset class 48.121. RFB included




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                                      costs for concrete, excavating, steel, fencing and construction
                                      in the leased digital equipment category.
                                         Respondent issued the deficiency notice disallowing the
                                      depreciation deductions. Respondent determined that the
                                      antenna structures should be depreciated over 15 years
                                      under asset class 48.14, rather than the seven years peti-
                                      tioners claimed. Respondent also determined that the cell
                                      site equipment and the leased digital equipment, other than
                                      the switch, should be depreciated over 10 years under asset
                                      class 48.12, rather than the five years petitioners claimed.
                                         Petitioners timely filed a petition.

                                                                                  OPINION

                                        We are asked to determine the appropriate class life for
                                      the ever-changing cellular phone industry. The parties dis-
                                      agree over the characterization of certain wireless cellular
                                      equipment for depreciation purposes. There are three cat-
                                      egories of equipment at issue: (1) antenna support structures,
                                      (2) cell equipment and (3) leased digital equipment. We begin
                                      by discussing depreciation generally, then address each
                                      equipment category in turn.
                                      I. Depreciation Generally
                                         A reasonable allowance for depreciation is allowed under
                                      section 167 3 for the exhaustion, wear and tear, and obsoles-
                                      cence of property used in a trade or business or held for the
                                      production of income. The depreciation deduction is based on
                                      the adjusted basis of the property, as determined under sec-
                                      tion 1011 for the purpose of determining gain on the sale or
                                      other disposition of the property. Sec. 167(c).
                                         Depreciation deductions were based on the estimated use-
                                      ful life of the property before 1981. The useful life was the
                                      period for which the taxpayer expected to use the asset in his
                                      or her trade or business, and did not necessarily correspond
                                      with the economic life of the asset. Sec. 1.167(a)–1(b), Income
                                      Tax Regs. Congress abandoned the useful life concept in 1981
                                      and adopted the accelerated cost recovery system (ACRS) in
                                      effect today. See Grinalds v. Commissioner, T.C. Memo.
                                      1993–66. ACRS allows greater depreciation for taxpayers
                                        3 All section references are to the Internal Revenue Code in effect for the years in issue unless

                                      otherwise indicated.




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                                      through shortened depreciation periods and simplifies depre-
                                      ciation calculations by reducing the number of property
                                      classes. S. Rept. 97–44, at 47 (1981), 1981–2 C.B. 412, 425.
                                      Congress modified ACRS (MACRS) in 1986 by prescribing
                                      mandatory depreciation methods for each ACRS class. See
                                      Grinalds v. Commissioner, supra.
                                        The Secretary has the authority to prescribe class lives for
                                      each class of property. See sec. 167(m). 4 The class lives are
                                      intended to reasonably reflect the anticipated useful life of
                                      that class of property to a particular industry or other group.
                                      Id. The guideline classes and periods (lives) are ‘‘established,
                                      supplemented, and revised’’ as necessary. Sec. 1.167(a)–
                                      11(b)(4)(ii), Income Tax Regs. The class lives of depreciable
                                      assets can be found in a series of revenue procedures issued
                                      by the Secretary. See id.
                                        The revenue procedure in effect for the years at issue is
                                      Rev. Proc. 87–56, 1987–2 C.B. 674. Rev. Proc. 87–56, supra,
                                      divides assets into two broad categories: (1) Asset guideline
                                      classes 00.11 through 00.4, consisting of specific depreciable
                                      assets used in all business activities (the asset category), and
                                      (2) asset guideline classes 01.1 through 80.0, consisting of
                                      depreciable assets used in specific business activities (the
                                      activity category). The asset category takes priority over the
                                      activity category if an asset is listed in both categories. See
                                      Norwest Corp. & Subs. v. Commissioner, 111 T.C. 105, 158
                                      (1998). ‘‘Telephone Communications’’ is listed as an activity
                                      in Rev. Proc. 87–56, 1987–2 C.B. at 684. The telephone
                                      communications category includes assets identified in asset
                                      classes 48.11 through 48.14 and used to provide commercial
                                      and contract telephone services. Id.
                                        The various classes of telephone equipment are defined by
                                      reference to the FCC’s Uniform System of Accounts for Class
                                      A and Class B Telephone Companies (USOA). 5 Id.; see also 47
                                         4 Sec. 167(m) was deleted from the Code by the Omnibus Budget Reconciliation Act of 1990,

                                      Pub. L. 101–508, sec. 11812(a)(1), 104 Stat. 1388–534. Sec. 167(m) essentially codified the Asset
                                      Depreciation Range system described in sec. 1.167(a)–11, Income Tax Regs., and in particular
                                      the system of asset guideline classes and periods found there. 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.
                                         5 Petitioners contend that respondent’s expert improperly relied on the FCC’s USOA classifica-

                                      tion to classify the cellular equipment. Petitioners’ argument overlooks that Rev. Proc. 87–56,
                                      1987–2 C.B. 674, 684, specifically references the USOA classification regime. Rev. Proc. 87–56,
                                      supra, adopts the FCC’s classification regime for certain types of assets. We find the adoption
                                      reasonable given the FCC’s experience and expertise in telecommunications. Furthermore, the
                                      reference to the USOA in Rev. Proc. 87–56, supra, is a shorthand way of referring to related
                                                                                                    Continued




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                                      C.F.R. pt. 31 (1986). Public utilities, like the wireless cellular
                                      industry, whose rates are often mandated by expenses, are
                                      routinely required to use uniform systems of accounting
                                      promulgated by regulatory agencies. See Sprint Corp. &
                                      Subs. v. Commissioner, 108 T.C. 384, 403 (1997) (citing Pac.
                                      Enters. & Subs. v. Commissioner, 101 T.C. 1 (1993)). The
                                      USOA is the uniform system of accounting that the FCC
                                      requires telecommunications companies to apply. See 47
                                      C.F.R. pt. 32.1 (1986). The USOA classifies telephone commu-
                                      nications equipment for accounting and depreciation pur-
                                      poses.
                                         The USOA classifications were revised in 1988, the year
                                      after Rev. Proc. 87–56, supra, was issued. 6 See USOA Revi-
                                      sion Order, 51 Fed. Reg. 43498 (Dec. 2, 1986). Property’s
                                      present class life, however, is determined based on the class
                                      life applicable to such property as of a particular date, in this
                                      case January 1, 1986. 7 Accordingly, accounts in place as of
                                      that particular date control, even though the FCC has since
                                      redefined its accounts. See Sprint Corp. & Subs. v. Commis-
                                      sioner, supra at 404. Nevertheless, we will consider the 1988
                                      revisions of the USOA classifications to the extent we find
                                      them helpful in interpreting the classifications in effect on
                                      January 1, 1986.
                                      II. Classification of the Equipment
                                         We now turn to classification of the equipment. We must
                                      determine for the first time how certain wireless cellular
                                      equipment should be classified. In interpreting other classi-
                                      fication issues of first impression, we have applied the plain
                                      language of the depreciation statutes and USOA classifica-
                                      tions. Id. We will therefore apply the plain language to deter-
                                      mine the proper classification of equipment category. We
                                      begin with the classification of the antenna support struc-
                                      tures.
                                      types of equipment. The Secretary ultimately determines the class lives.
                                         6 The revision changed the relevant account numbers but did not make significant substantive

                                      changes to the classification categories.
                                         7 In Sprint Corp. & Subs. v. Commissioner, 108 T.C. 384, 402 (1997), the date was Jan. 1,

                                      1981, pursuant to former sec. 168(g)(2). We noted that ‘‘One essential theme of the ACRS was
                                      predictable depreciation periods; that was accomplished by freezing in time the property classi-
                                      fications as they were on January 1, 1981. Until further amendment by Congress, there were
                                      to be no changes.’’ Id. at 404. The applicable date is here Jan. 1, 1986, pursuant to sec. 168(i)(1).




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                                           A. The Antenna Support Structures
                                         RFB classified a broad range of wireless cellular equipment
                                      as ‘‘antenna supporting structures’’ under asset class 48.32,
                                      which it then depreciated over seven years. 8 Respondent con-
                                      tends that the class life should be adjusted to 15 years under
                                      asset class 48.14. RFB classified the equipment as antenna
                                      supporting structures under asset class 48.32 because the
                                      equipment was used to support the antennas and related
                                      equipment. Asset class 48.32 is in the Telegraph, Ocean
                                      Cable, and Satellite Communications (TOCSC) activity cat-
                                      egory. Asset class 48.32 therefore does not apply because the
                                      TOCSC activity category involves ‘‘domestic and international
                                      radio-telegraph, wire-telegraph, ocean-cable * * * [or] sat-
                                      ellite communications services.’’ Rev. Proc. 87–56, 1987–2
                                      C.B. at 684. 9
                                         Instead, the equipment is more appropriately categorized
                                      in the ‘‘Telephone Communications’’ activity category. Peti-
                                      tioners claim the Telephone Communications activity cat-
                                      egory is too broad to apply to the wireless equipment at
                                      issue. They argue that comparing the wireless cellular equip-
                                      ment to equipment used by traditional landline telephone
                                      companies is tantamount to comparing a calculator to an
                                      abacus. They claim that respondent’s classification ignores
                                      the physical, technological and practical differences between
                                      the equipment. Petitioners argue further that wireless cel-
                                      lular equipment has a useful life that is ‘‘demonstrably
                                      shorter’’ than that of landline equipment. They may nonethe-
                                      less not depreciate their equipment under a class life simply
                                      because they believe it better approximates the equipment’s
                                      useful life. See Grinalds v. Commissioner, T.C. Memo. 1993–
                                      66. Deductions are a matter of legislative grace, and peti-
                                      tioners are entitled to deduct only the amounts prescribed by
                                      Congress. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
                                      84 (1992).
                                         8 RFB characterized the equipment very broadly on its depreciation schedules. This Court

                                      bears heavily against taxpayers whose inexactitude is of their own making. See Bogue v. Com-
                                      missioner, T.C. Memo. 2007–150.
                                         9 Moreover, even if the antenna support structures were properly classified as TOCSC prop-

                                      erty, they would have a class life of 24 years, rather than seven years as classified by peti-
                                      tioners. Rev. Proc. 87–56, 1987–2 C.B. at 684, states that if property described in the TOCSC
                                      classes ‘‘is comparable to telephone distribution plant described in Class 48.14 and used for the
                                      2-way exchange of voice and data communication which is the equivalent of telephone commu-
                                      nication, such property is assigned a class life of 24 years under this revenue procedure.’’




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                                         Moreover, the plain language of Rev. Proc. 87–56, supra, is
                                      unambiguous as it applies to RFB’s equipment. Assets in the
                                      Telephone Communications activity category are used to pro-
                                      vide commercial and contract telephonic services, which peti-
                                      tioner provided during the years at issue. See id., 1987–2
                                      C.B. at 684. The relevant asset class for the antenna support
                                      structures is class 48.14. This class includes ‘‘telephone dis-
                                      tribution plant’’ assets, which include ‘‘pole lines, cable,
                                      aerial wire, underground conduits, and comparable equip-
                                      ment.’’ Id. The antenna support structures fit with the assets
                                      listed in asset class 48.14, because they provide structural
                                      support to the antennas and related equipment.
                                         Furthermore, the antenna support structures are includ-
                                      able in asset class 48.14 by reference to the USOA. Asset class
                                      48.14 includes ‘‘land improvements, as defined in FCC Part
                                      31, Account 241.’’ Id. Account 2411, which is the modified
                                      version of Account 241, includes ‘‘towers * * * not associated
                                      with building’’, or otherwise freestanding. See 47 C.F.R. pt.
                                      32.2411 (1988). 10 Respondent’s expert testified that RFB’s
                                      towers are appropriately classified as freestanding because
                                      the towers’ association with various buildings was purely
                                      incidental. RFB installed towers on top of preexisting
                                      buildings where it was necessary to ensure that the antennas
                                      would be unobstructed. Regardless of where they were built,
                                      the towers were freestanding structures designed for the sole
                                      purpose of providing structural support to the antenna. 11
                                         We hold, accordingly, that the appropriate asset class for
                                      the antenna support structures is asset class 48.14. Assets in
                                      asset class 48.14 have a recovery period of 15 years. Rev.
                                      Proc. 87–56, 1987–2 C.B. at 684. We therefore sustain
                                      respondent’s determination that petitioners improperly
                                      depreciated the antenna support structures over a period of
                                      7 years.


                                         10 The antenna support structures’ present class life is determined based on the class life ap-

                                      plicable to such property as of Jan. 1, 1986. Here we view the 1988 revisions of the USOA classi-
                                      fications as helpful in interpreting the classifications in effect on Jan. 1, 1986.
                                         11 Petitioners contend that the equipment shelters should not be included within asset class

                                      48.14 because they are movable structures, and therefore cannot constitute land improvements.
                                      Petitioners have not provided any evidence, beyond their own self-serving testimony, that the
                                      equipment shelters were movable by design.




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                                           B. The Cell Site Equipment
                                         We now turn to classification of the cell site equipment.
                                      RFB characterized a wide variety of cell site equipment,
                                      including the base station and the switch, under the general
                                      category of ‘‘cell site equipment’’. RFB classified the cell site
                                      equipment as computer-based telephone central office
                                      switching equipment (computer-based switching equipment)
                                      under asset class 48.121 and depreciated the equipment
                                      using a 5-year life. Respondent concedes that petitioner prop-
                                      erly classified the switch as computer-based switching equip-
                                      ment under asset class 48.121. Respondent contends that the
                                      remaining cell site equipment, including the base station,
                                      should be classified as telephone central office equipment
                                      under asset class 48.12. 12 Petitioners argue that the base
                                      station should be included in asset class 48.121 because it
                                      has some of the same equipment and can perform some of
                                      the same functions as the switch.
                                         Asset classes 48.121 and 48.12 both apply to telephone cen-
                                      tral office switching equipment. The major distinction
                                      between the two asset classes is that asset class 48.121
                                      ‘‘includes equipment whose functions are those of a computer
                                      or peripheral equipment’’. Id. The term ‘‘computer’’ refers to
                                      a programmable electronically activated device that (1) is
                                      capable of accepting information, applying prescribed proc-
                                      esses to the information, and supplying the results of these
                                      processes with or without human intervention, and (2) con-
                                      sists of a central processing unit containing extensive stor-
                                      age. See sec. 168(i)(2)(B)(ii). ‘‘Related peripheral equipment’’
                                      includes any equipment designed to be placed under the con-
                                      trol of the central processing unit of a computer. Sec.
                                      168(i)(2)(B)(iii).
                                         Petitioners argue that the remaining cell site equipment
                                      qualifies as computer equipment because it contains comput-
                                      erized parts. They emphasize that the radio uses the com-
                                      puter processing system of converting transmissions into
                                      ones and zeroes. Many devices, including cars and CD
                                      players, use the same computer processing system. We agree
                                         12 We note that the revenue procedure in effect for taxable years ending on or after Dec. 31,

                                      2010, now classifies the ‘‘base station controller (or generational equivalent) * * * [and the] base
                                      transceiver station (or generational equivalent)’’ in asset class 48.121 with a recovery period of
                                      five years. Rev. Proc. 2011–22, 2011–18 I.R.B. at 738.




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                                      with respondent that, under petitioners’ analysis, virtually
                                      every asset in today’s increasingly computerized world would
                                      be labeled a computer.
                                         Moreover, even though the remaining equipment included
                                      some computerized parts, the equipment is not a computer.
                                      See sec. 168(i)(2)(B). The key component of the base station
                                      and other cell site equipment was the radio. The primary
                                      purpose of the radio was to transmit cellular communications
                                      between the cell phone and the switch. The radio itself did
                                      not employ computer processing, nor did it contain a central
                                      processing unit containing extensive storage. We find it
                                      compelling that even though the base station contained some
                                      of the same software as the switch, which is classified as a
                                      computer, the base station did not have the computer system
                                      or storage capacity to keep billing records. Furthermore, the
                                      radio technology has functioned for many years without the
                                      use of computerized parts, suggesting that those parts are
                                      only ancillary. The presence of some computerized compo-
                                      nents therefore does not qualify the remaining cell site
                                      equipment as computer-based.
                                         Finally, the plain language of Rev. Proc. 87–56, 1987–2
                                      C.B. at 684, places the remaining cell site equipment in asset
                                      class 48.12. Asset class 48.12, ‘‘telephone central office equip-
                                      ment’’, includes ‘‘central office switching and related equip-
                                      ment as defined in * * * [USOA] Account No. 221’’ such as
                                      ‘‘radio transmitters and receivers.’’ See 47 C.F.R. pt. 32.2231
                                      (1988).
                                         We find that the remaining cell site equipment, including
                                      the base station, is instead covered by asset class 48.12,
                                      which has a recovery period of ten years. See id. We there-
                                      fore sustain respondent’s determination that petitioners
                                      improperly depreciated the cell site equipment over a period
                                      of five years.
                                           C. The Leased Digital Equipment
                                         We now turn to the leased digital equipment. RFB classified
                                      a wide variety of digital equipment, including the base sta-
                                      tion, the switch, and the antenna support structures, as com-
                                      puter-based switching equipment under asset class 48.121.
                                      RFB depreciated all the digital equipment over five years
                                      under asset class 48.121. The digital equipment comprised




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                                      some of the same assets as the analog equipment. We find
                                      therefore, for the reasons cited previously, that the switch
                                      has a 5-year class life under asset class 48.121 and the
                                      remaining cell site equipment has a class life of ten years
                                      under asset class 48.12. The towers and related land
                                      improvements have a class life of 15 years under asset class
                                      48.14.
                                        Furthermore, depreciation does not begin until the asset is
                                      placed in service. See sec. 168(d). An asset is placed in
                                      service when it is ‘‘acquired and put into use.’’ Wilson v.
                                      Commissioner, T.C. Memo. 2002–61, affd. 71 Fed. Appx. 623
                                      (9th Cir. 2003). Petitioners therefore may not claim any
                                      depreciation deductions for the leased digital equipment until
                                      2000.
                                        Additional issues are being addressed in a forthcoming
                                      opinion.

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