                  T.C. Summary Opinion 2009-171


                      UNITED STATES TAX COURT



                COURTNEY A. BROWN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24080-07S.             Filed November 23, 2009.



     Courtney A. Brown, pro se.

     L. Katrine Shelton, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 -2-

this opinion shall not be treated as precedent for any other

case.

     Respondent determined deficiencies in petitioner’s Federal

income taxes and penalties as follows:

                                                       Penalty
        Year                 Deficiency             Sec. 6662(a)

        2004                   $29,263               $5,852.60
        2005                     6,172                1,234.40

     After concessions by both parties, the sole issue remaining

for decision is whether equipment petitioner purchased in 2002

and 2003 was placed in service in 2004.

                             Background

     Some of the facts have been stipulated and are incorporated

herein by this reference.    Petitioner resided in California when

he filed his petition.

     During 2002 petitioner was employed full time as an

electrical engineer, designing audio equipment such as

synthesizers, audio mixers, recording studio consoles, and

multimedia processors for computers.      Petitioner, however,

desired to go into business for himself and also operated a

studio recording business.   He operated this business as a sole

proprietorship until it was organized in 2003 as Best of Cabaret,

L.L.C. (Best of Cabaret), a single-member limited liability

company treated as a disregarded entity for Federal tax purposes.
                                -3-

During 2004 petitioner no longer worked as an electrical engineer

and operated his studio recording business on a full-time basis.

     Petitioner purchased computer and musical equipment (the

equipment) for his business in 2002, 2003, and 2004.   He tested

some of the equipment before 2004 to gain familiarity with it,

but the equipment was not fully functional until it was

interconnected in 2004.   The equipment was not used in

petitioner’s business until 2004, and petitioner considered the

equipment as placed in service during 2004.   Petitioner claimed a

section 179 deduction on his 2004 return and computed his

depreciation deductions for 2004 and 2005 accordingly.    His

depreciation and section 179 deductions totaled $22,832 in 2004

and $22,275 in 2005.

     On July 17, 2007, respondent sent petitioner a notice of

deficiency determining, inter alia, that the equipment purchased

in 2002 and 2003 was not placed in service in 2004.    Respondent

therefore disallowed the section 179 deduction and recomputed

petitioner’s depreciation.   On the basis of these recalculations,

petitioner’s claimed depreciation and section 179 deductions were

disallowed in the amounts of $3,417 in 2004 and $14,505.48 in

2005.

     On October 19, 2007, petitioner filed a timely petition

challenging respondent’s determinations.   The parties have

resolved by agreement all issues except whether petitioner’s
                                 -4-

equipment purchased in 2002 and 2003 was placed in service

during 2004.

                             Discussion

     Section 167 provides for a depreciation deduction for the

exhaustion, wear and tear, or obsolescence of property used in a

trade or business.   For tangible property, the deduction is

computed by reference to the applicable depreciation method,

recovery period, and convention.   Sec. 168(a).     The period of

depreciation begins when the asset is placed in service.      Sec.

1.167(a)-10(b), Income Tax Regs.

     In addition, section 179 allows a taxpayer to elect to

deduct as a current expense, within certain dollar limitations,

the cost of section 179 property in the year such property is

placed in service.   Sec. 179(a) and (b).     In order to qualify as

section 179 property, it must, inter alia, be acquired by

purchase for use in the active conduct of a trade or business.

Sec. 179(d)(1).    For purposes of section 179, “trade or business”

has the same meaning as in section 162 and the regulations

thereunder, and therefore property held merely for the production

of income or used in an activity not engaged in for profit does

not qualify as section 179 property.      Sec. 1.179-2(c)(6)(i),

Income Tax Regs.

     “Placed in service” means the time that property is first

placed by the taxpayer in a condition or state of readiness and
                                -5-

availability for a specifically assigned function, whether for

use in a trade or business, for the production of income, in a

tax-exempt activity, or in a personal activity.    Secs.

1.167(a)-11(e)(1)(i), 1.179-4(e), Income Tax Regs.

     Petitioner purchased the equipment from 2002 to 2004 for use

in his studio recording business.     Petitioner contends that the

equipment was not used until 2004 and was therefore placed in

service that year.

     Respondent contends the equipment was placed in service in

2002 and 2003 because petitioner tested some pieces of equipment

before 2004.   Respondent argues that the equipment was thus ready

and available for its specifically assigned function at that

time.   We agree with petitioner.

     Individual components are treated as a single property for

tax purposes when they are functionally interdependent.

Armstrong World Indus., Inc. v. Commissioner, 974 F.2d 422, 430

(3d Cir. 1992), affg. T.C. Memo. 1991-326; FPL Group, Inc. &

Subs. v. Commissioner, T.C. Memo. 2005-208.     Regardless of the

amount of testing petitioner performed on each individual

component, the equipment was not capable of performing its

assigned function until interconnected and capable of supporting

the operation of the studio.   Each piece of equipment was thus

essential to the operation of the studio as a whole and was not

useful or able to be used to operate a business by itself.    See
                                 -6-

Consumers Power Co. v. Commissioner, 89 T.C. 710 (1987)

(reservoir was an inseparable part of a hydroelectric plant);

Siskiyou Commcns., Inc. v. Commissioner, T.C. Memo. 1990-429

(DMS-10 switch and toll carriers were part of an integrated

telephone system).

     Accordingly, we hold that the equipment petitioner

purchased in 2002 and 2003 was placed in service in 2004 and that

petitioner is entitled to the depreciation and section 179

deductions claimed on his 2004 and 2005 returns.

     We have considered all of the parties’ contentions,

arguments, requests, and statements.     To the extent not discussed

herein, we conclude that they are irrelevant, moot, or without

merit.

     To reflect the foregoing,


                                            Decision will be entered

                                       under Rule 155.
