                        T.C. Memo. 2004-188



                      UNITED STATES TAX COURT



          ROBERT D. AND ANA M. SHIRLEY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5003-02.               Filed August 24, 2004.


     Jan R. Pierce, for petitioners.

     Kelley A. Blaine, for respondent.



                        MEMORANDUM OPINION

     HOLMES, Judge:   This case is about whether the cost of a

motor home,1 bought to be added to a rental fleet, is deductible.

The contested deduction is not allowable if a motor home is



     1
       As early as 1920, enterprising Americans began attaching
small homes to Model T chassis to travel the roads in comfort
greater than they could have in a car alone. These improvised
efforts evolved into recreational vehicles, or “motor homes” as
they are called by those in the industry.
                                 - 2 -

“used predominantly to furnish lodging,” but is allowable if a

motor home is “used primarily as a means of transportation.”

It thus asks an imponderable question--when a vehicle can be

simultaneously used for both lodging and transportation, how can

one tell which use is primary?

                             Background

     Robert and Ana Shirley were Oregon residents when they filed

their petition.    Robert Shirley owned Motor Home Rentals, a

business in Central Point, Oregon that both rented and sold motor

homes.    During 1997, his rental fleet had a total of 27 motor

homes, including a new 1998 Gulfstream Motor Home that he bought

for $48,000 in August and added to his fleet under the

designation “MH #22.”

     His usual terms for motor home rentals were much like those

for car rentals--a daily or weekly fee, a daily mileage allowance

of 100 miles, and a mileage charge of $.25 for each additional

mile.    In 1997, petitioner rented his motor homes to numerous

customers in a total of 322 transactions, for anywhere between

one and 90 days.    Most of his customers used fewer than their 100

miles per day.

     This case arose from notices of deficiency that respondent

issued for 1997 and 1998.    Concessions and compromises by both

parties completely settled the dispute about the Shirleys’ 1998

deficiency, leaving only one issue to decide--whether to allow
                                 - 3 -

petitioners a deduction on their 1997 return for part of the cost

of MH #22.    Before the case went to trial, the parties fully

stipulated the facts under Rule 122.2

                               Discussion

     Section 179(a) allows a taxpayer a deduction--in 1997, one

of up to $18,000--for property (prosaically called “Section 179

property”) used in his trade or business that he must otherwise

add to his capital account and depreciate.     The deduction comes

with numerous restrictions, one of which is that any property

described in section 50(b) is ineligible to be section 179

property.    Sec. 179(d)(1).   Section 50(b) itself defines terms

for various tax credits and deductions granted elsewhere in the

Code.    It excludes certain kinds of property from these benefits,

including “property which is used predominantly to furnish

lodging or in connection with the furnishing of lodging.”     Sec.

50(b)(2).    This is then followed by exceptions to the exclusion,

one of which is “property used by a hotel or motel in connection

with the trade or business of furnishing lodging where the

predominant portion of the accommodations is used by transients.”

Sec. 50(b)(2)(B).3


     2
       All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code as in effect for the year at issue.
     3
       These exclusions first became law in the Revenue Act of
1962, Pub. L. 87-834, 76 Stat. 960, as limits on the then-new
investment tax credit. President Kennedy expected this incentive
                                                   (continued...)
                                 - 4 -

     The parties agree that MH #22 meets all the requirements for

being section 179 property except one:      Respondent argues that

motor homes generally, and MH #22 in particular, are property

“used predominantly to furnish lodging.”      Petitioners disagree

with respondent on that point, contending that motor homes are

primarily used for transportation.       Petitioners also argue that

even if MH #22 is predominantly used for lodging, it qualifies

for the exception to the exclusion, because it is lodging the

predominant portion of which is “used by transients,” since most

of petitioners’ customers were short-term renters.

     Solving this puzzle as the parties have presented it

requires answering two preliminary questions.      The first is

whether we should focus on MH #22 alone, or on Shirley’s motor

home business as a whole; the second is whether regulations exist

that we can look to in analyzing the question.

     Neither party squarely addressed the issue of whether we

should look at the “predominant use” of Shirley’s fleet of rented

motor homes or at the “predominant use” of MH #22 alone, but we

do have some usable precedent.    In Van Susteren v. Commissioner,

T.C. Memo. 1978-310, we decided that a small businessman who



     3
      (...continued)
to stimulate the economy by allowing business owners a credit on
their tax bill for purchases of new tangible personal property.
H. Rept. 1147, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 402, 411-
413. The credit’s purpose was to increase “the profitability of
productive investment by reducing the net cost of acquiring new
equipment.” Id., 1962-3 C.B. at 411.
                                - 5 -

bought four mobile homes as additional rooms for his motel was

entitled to an investment tax credit.      Over the objections of the

Commissioner in that case, we did not separately test each mobile

home’s eligibility for the credit.      It was enough that each

trailer did not “represent a separate trade or business” and that

the stipulated facts showed that the taxpayer was operating only

a single business.4    See also Koerner v. Commissioner, T.C. Memo.

1983-588 n.6 (same).

     Shirley was likewise managing his motor home rental

enterprise as a single business; he used MH #22 as just one more

asset in that business.    We follow Van Susteren and Koerner and

will not look to the 1997 use of MH #22 alone; instead, we look

to the use of the fleet of motor homes of which it was a part.

     Analyzing whether applicable regulations exist begins with

the history of section 50.    That section was added to the Code by

the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508

(OBRA 1990), sec. 11813(a), 104 Stat. 1388, 1388-536 through

1388-550.5   OBRA 1990 essentially reenacted old section 48(a)(3)



     4
       And because more than half of the total units at his motel
(i.e., those in his motel building, plus the mobile homes) were
used predominantly by transients, he qualified for an exception
to the general exclusion of lodging investments from the credit.
     5
       It was enacted as part of an extensive effort by Congress
to simplify the Code by amending and deleting numerous provisions
that had become obsolete. The legislative history stresses that
there was no attempt to simplify by making substantive changes.
H. Rept. 101-894, at 36 (1990); H. Conf. Rept. 101-964, at 1142
(1990).
                                - 6 -

as new section 50(b)(2).    The Secretary never issued regulations

under section 50(b)(2), but the existing Treasury regulations

under old section 48(a)(3) have remained unchanged since the time

of their issuance in 1964.6    The definition of “section 179

property” largely matches old section 48’s definition of “section

38 property” that was in the 1954 Code.    Sec. 179(d).   Old

section 48(a)(1) defined “section 38 property” as “tangible

personal property,” and old section 48(a)(3) excluded from that

definition “[p]roperty which is used predominantly to furnish

lodging or in connection with the furnishing of lodging.”

Current section 50(b)(2) is nearly identical to old section

48(a)(3), so we will use the regulations under old section 48 for

guidance.

     Section 1.48-1(h)(1)(i) of those regulations provides that

property eligible for the deduction

     does not include property which is used predominantly
     to furnish lodging or is used predominantly in
     connection with the furnishing of lodging during the
     taxable year. * * * The term “lodging facility”
     includes an apartment house, hotel, motel, dormitory,
     or any other facility (or part of a facility) where
     sleeping accommodations are provided and let, except
     that such term does not include a facility used
     primarily as a means of transportation (such as an
     aircraft, vessel, or a railroad car) * * * even though
     sleeping accommodations are provided.

     Section 1.48-1(h)(2)(ii) of the regulations then further

describes the transient exception to the lodging exclusion:



     6
         Compare T.D. 6731, 1964-1 C.B. (Part 1) 11, 39-40.
                             - 7 -

     Property used by a hotel, motel, inn, or other
     similar establishment, in connection with the
     trade or business of furnishing lodging shall not
     be considered as property which is used
     predominantly to furnish lodging or predominantly
     in connection with the furnishing of lodging,
     provided that the predominant portion of the
     lodging accommodations in the hotel, motel, etc.,
     is used by transients during the taxable year.
     For purposes of the preceding sentence, the term
     “predominant portion” means “more than one-half”.
     Thus, if more than one-half of the living quarters
     of a hotel, motel, inn, or other similar
     establishment is used during the taxable year to
     accommodate tenants on a transient basis, none of
     the property used by such hotel, motel, etc., in
     the trade or business of furnishing lodging shall
     be considered as property which is used
     predominantly to furnish lodging or predominantly
     in connection with the furnishing of lodging.
     Accommodations shall be considered used on a
     transient basis if the rental period is normally
     less than 30 days.

     We adopt, as the parties suggest, this regulation’s

definition of a transient as one who rents for less than 30 days.

We also note that in Moore v. Commissioner, 58 T.C. 1045, 1054 n.

8, affd. 489 F.2d 285 (5th Cir. 1973), we held that “predominant

portion” means the proportion of accommodations used by

transients, not the proportion of all renters who are transients.

     Finally, the parties also agree that section 1.48-

1(h)(1)(i), Income Tax Regs., prescribes an all-or-nothing

approach.   Under this approach, we characterize mixed-used assets

according to their predominant use.   The regulation thus seems to

require us to decide whether an asset was used predominantly for

lodging or transportation.
                              - 8 -

     In other sections of the Code and regulations that use

similar language, deciding “predominant” means defining a common

denominator and then measuring relative size.   For example, use

of property “predominantly outside the United States” is measured

by the time that the property is physically in the United States

compared to the time that it is outside, sec. 1.48-1(g)(1)(i),

Income Tax Regs.; deciding whether a real estate investment trust

is “predominantly held by qualified trusts” is measured by the

value of trusts’ holdings in the REIT compared to the value of

others’ holdings, sec. 856(h)(3)(D)(i); and use of a bus

“predominantly * * * in furnishing (for compensation) passenger

land transportation” is measured by the miles the bus is used to

carry paying passengers compared to the miles it travels without

them, sec. 48.4221-8(b)(2), Manufacturers and Retailers Excise

Tax Regs.

     But unlike a bus, which cannot simultaneously carry and not

carry paying passengers, a motor home can certainly be used for

both transportation and lodging; that is what it is built for.

The regulation seems to recognize this as well, since it makes

“sleeping accommodations” the sine qua non of “lodging” while

recognizing that airplanes, ships, and railroad cars make some

provision for passengers who sleep while on board.   But the

regulation does not tell us what characteristics of airplanes or

ships or railroad cars distinguish them from more ordinary
                               - 9 -

lodgings such as apartment buildings or houses.     The parties

disagree about the consequences of this fact.

     Petitioner urges us to adopt a bright-line test under which

we would consider a motor home as used “predominantly for

transportation” where it is regularly used in the taxpayer’s

business for transportation.   Respondent would have us look to

the amount of time spent in the motor homes for transportation

versus the time spent in the motor homes for lodging.

     The difficulty with both these positions is that neither

explains why, in measuring predominant use, one type of use

should “count” for more than the other.     Petitioners’ position

amounts to an assertion that, if motor homes are used for

transportation, then transportation is their primary use.     But

why this should be so, apart from the ease of administering this

as a bright-line test, is unclear.     Respondent asserts that we

should use time as a common denominator of uses; if the time

spent in Shirley’s motor homes while they were traveling exceeded

the time spent in them while people were lodging, then and only

then would their primary use be transportation.

     As petitioners point out, respondent does not suggest how we

deal with the problem of simultaneous use--some family members

sleeping, eating or cooking in the back while one drives.     Nor

does respondent suggest how, in the real world, any businessman

could possibly rely on his rental customers to maintain the
                              - 10 -



detailed, almost minute-by-minute logs required for this test to

work.7

     Other tests are possible.   One could conceive of a test that

looked to the value of the mobility of the motor home to the

renter versus the value of its capacity to be used for lodging.

Or one could try to identify the “primary function” of a motor

home (though this would seem to be the same as trying to identify

its “primary use.”)8   But none of these tests--including both

petitioners’ and respondent’s--suggests a way out of the


     7
       Respondent’s position is weakened by the reality that
property undoubtedly used for transportation--cars, for
example--are at rest in garages and parking lots much longer than
they are on the road. We do note that in LaPoint v.
Commissioner, 94 T.C. 733, 735 (1990), the parties stipulated
that the taxpayer used a car for business uses “85 percent of the
time”, but we are not sure how to construe it. It seems unlikely
this meant total time rather than percentage of time in use, but
it could also have meant percentage of trips or even mileage (if
the taxpayer in LaPoint kept the usual log for those wishing to
deduct car-related expenses). In any event, the key issue in
that case was whether the car was used “predominantly * * * in
connection with the furnishing of lodging” id. at 736, and so it
gives limited help in analyzing the question of simultaneous use
of motor homes for both lodging and transportation.
     8
       In L.L. Bean, Inc. v. Commissioner, T.C. Memo. 1997-175,
affd. 145 F.3d 53, 56 (1st Cir. 1998), we had to decide whether a
rack system inside a warehouse, which both held merchandise and
supported the warehouse’s walls and roof, was tangible personal
property. Taxpayers proposed a primary function test, as opposed
to a strict structural function test. The Court, however, found
that even a primary function test would not favor petitioners
because the necessity of the rack system to prevent a collapse of
the building did not allow the structural function to be
categorized as secondary.
                               - 11 -

underlying dilemma of comparing a motor home’s use as lodging to

its use as transportation.

     We think a better way to analyze whether mobile homes were

predominantly used for lodging lies in Union Pacific v.

Commissioner, 91 T.C. 32 (1988).    In Union Pacific, railroad

employees who tested and replaced track in remote locations lived

in company-supplied, rent-free mobile homes.   Union Pacific paid

these employees their normal wages and benefits and argued that

this meant the housing was just a required part of new track

installation, the type of productive activity that Congress meant

to qualify as creditable.    Union Pacific thought the distinction

was important because the purpose of the investment tax credit

(like the purpose of section 179) was to stimulate production.

     We have looked to the legislative history of the investment

tax credit for help in construing the meaning of its terms.      In

Norwest Corp. v. Commissioner, 108 T.C. 358, 365 (1997) we noted

that Congress expressly said that the phrase “tangible personal

property” should not be narrowly defined.   In Union Pacific, we

similarly noted that the legislative history of the lodging

exception showed that investment in “‘[l]odging, or residential

real estate, * * * is excluded on the grounds that this property

for the most part is used by consumers rather than in

production.’”   Union Pacific v. Commissioner, supra at 39,

(quoting Staff of Joint Comm. on Taxation, General Explanation
                              - 12 -

of Committee Discussion Draft of Revenue Bill of 1961, at 9

(J. Comm. Print 1961)).   We nevertheless held that, in deciding

whether the mobile homes at issue were used predominantly for

lodging, the key factor was the alternative to company-paid

accommodations their inhabitants would likely have bought.    We

reasoned that “they are nonetheless used by individuals to

replace assets that clearly would not be [qualifying property]--

if * * * housing were not provided to the * * * employees, those

employees would be forced to either rent or buy other housing.”

Id.   This substitute housing, it was implied, could not be

qualifying property because it was residential real estate.    Of

course, from Union Pacific’s viewpoint, the mobile homes were

part of its productive investment, even if they were also used

for lodging.

      Union Pacific is thus some guide to the general problem of

how to characterize property capable of two simultaneous uses.

As in Union Pacific, we must ask what Shirley’s customers would

have had to buy or rent if motor homes were not available.    If

these substitute goods would be allowed as qualifying property

under section 50(b), then so would motor homes.   Shirley’s

customers, unlike the railway workers in Union Pacific, would

need as substitute goods some combination of both lodging and

transportation.   If a car or truck were rented to customers to

provide them with the mobility of a motor home, those vehicles
                              - 13 -

would clearly qualify as section 179 property.    But what would

substitute for the lodging accommodations a motor home provides?

We know from the stipulated facts that the predominant number of

motor home rentals were for less than 30 days.9   This strongly

suggests that Shirley’s customers would rent hotel or motel

rooms, campground space, or other transient lodging.    All of

these would qualify for the exception to the general exclusion of

lodging from the category of section 179 property.

     Because both the substitute transportation and the substi-

tute lodging would qualify, we conclude that motor homes, like

Shirley’s, used by renters mostly for periods of less than 30

days, are section 179 property.   As we have in other cases of

deciding eligibility for the investment tax credit,10 we leave

grappling with a difficult element of a difficult test for

another case.   In this one, petitioners are allowed a deduction

under section 179 for the purchase of MH #22 in 1997.

     To reflect the other concessions and compromises already

made by the parties,


     9
       The stipulated evidence shows that 24 of Shirley’s 27
motor homes were rented to transients more than half the time
that those 24 motor homes were rented during 1997.
     10
        See, e.g., Tibbs v. Commissioner, T.C. Memo. 1987-515
(avoiding decision on whether mobile homes were “tangible
personal property”); Pickren v. Commissioner, T.C. Memo. 1981-52
(avoiding decision on whether mobile homes qualified as hotel or
motel).
- 14 -

     Decision will be entered

under Rule 155.
