                          T.C. Memo. 1999-236



                        UNITED STATES TAX COURT



               GARY G. AND LINDA J. HART, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 5492-98.                Filed July 21, 1999.




        Gary R. Matthews, for petitioners.

        Aubrey C. Brown, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


        ARMEN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

        1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
                                                   (continued...)
                                 - 2 -


     Respondent determined a deficiency in petitioners' Federal

income tax for the taxable year 1994 in the amount of $3,109.

     After concessions by the parties,2 the issues for decision

are as follows:

     (1)    Whether petitioners' tobacco barn is section 179

property; and,

     (2)    What is the applicable recovery period for petitioners'

tobacco barn.

                           FINDINGS OF FACT

     Some of the facts have been stipulated, and they are so

found.     Petitioners resided in Richmond, Kentucky, at the time

that their petition was filed with the Court.

     Petitioners own a 187-acre farm on which they grow burley

tobacco and raise beef cattle.    In addition, petitioners grow a



(...continued)
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
     2
        Petitioners concede an adjustment regarding the
applicable depreciation method, recovery period, and convention
with respect to a concrete septic tank. Further, petitioners
concede an adjustment for Schedule F mortgage interest in the
amount of $3,217. Respondent concedes that petitioners are
entitled to Schedule A deductions for State and local taxes in
the amount of $1,026, home mortgage interest in the amount of
$3,217, medical expenses in the amount of $2,243 to the extent
such amount exceeds 7.5 percent of adjusted gross income, and
charitable contributions in the amount of $3,123. Finally, the
parties agree that the earned income credit adjustment is purely
computational.
                               - 3 -


limited amount of corn and hay to feed their cattle.    During the

year in issue, petitioners grew approximately 50,000 pounds of

tobacco on their farm.   Petitioners also purchase, and make ready

for market, tobacco crop from tobacco farmers who do not

themselves process the tobacco.

     To make their tobacco ready for market, petitioners process

the tobacco in the following manner:   Petitioners generally

harvest their tobacco crop at the end of July.   The cut tobacco

is then mounted over approximately 4-foot-long sticks, six to

eight plants on a single stick.   The tobacco is then left in the

field for a few days for field curing; i.e., drying.    Thereafter,

the tobacco is loaded onto wagons and transported to a tobacco

barn.   In the tobacco barn, the tobacco sticks are hung on

stringers and left to cure for several months, generally until

October.   Petitioners hire a "few" employees for about 6 weeks to

assist them with the aforementioned tasks.

     After curing their tobacco, petitioners strip the tobacco

leaves from the stalk and grade them into 3 to 4 different

qualities.   Stripping and grading of the tobacco leaves are

essential parts of petitioners' tobacco business.    Finally,

petitioners bale the graded tobacco leaves, put them into boxes,

and transport them to another location where they are eventually

shipped to the market.   Petitioners hire a "few" employees,

generally for about 5 months, to assist them with the stripping,

grading, baling, and boxing of the tobacco leaves.
                                - 4 -


     Petitioners acquired a new tobacco barn in 1994 (the Tobacco

Barn).    The Tobacco Barn is an enclosed structure consisting of

wooden walls, a high A-type ceiling, and a dirt floor.    It is 36

feet wide and 96 feet long.    It has 3 doors on each of two

opposite sides large enough to admit large pieces of machinery or

farming equipment.    The Tobacco Barn is constructed with 42

support beams, four across and thirteen deep, set on concrete

piers.    There are drop rails running north to south and east to

west at a 90-degree angle to the support beams.    The drop rails

are set at three different heights and are used to hang the

tobacco sticks.    The Tobacco Barn is not foundationally strong

and could not, for example, house cattle.    However, the Tobacco

Barn could be structurally strengthened with relative ease.

     The Tobacco Barn was constructed to provide for ventilation

through the roof, side walls and side doors.    On each of the two

opposite sides of the barn, there are approximately seven

ventilator doors (about 2 feet wide) used to control air flow.

There are also cracks between the boards on the sides of the

barn.    Due to the cracks in the walls, large quantities of grain

cannot be stored in the Tobacco Barn.

     The Tobacco Barn is equipped with minimal electrical wiring

and lighting fixtures.    It is not insulated, nor does it have

heating or plumbing.
                               - 5 -


     The Tobacco Barn was not completed until November 1994, and

petitioners did not cure tobacco in the Tobacco Barn during 1994.

After its completion, petitioners used the Tobacco Barn for

stripping, grading, and baling the tobacco leaves.

     Since 1994, petitioners have used the Tobacco Barn in a

substantial part of their tobacco business, including the curing,

stripping, grading, baling, and boxing of the tobacco leaves.

During curing season, petitioners use the Tobacco Barn mainly as

a curing facility.   During that season, all of the work performed

in the Tobacco Barn is related to the curing of the tobacco.    For

example, the Tobacco Barn is not equipped with a cable hoist

system, and tobacco is hung manually by petitioners and their

employees.

     After the curing season, petitioners use the Tobacco Barn

for about 5 months of the year for stripping, grading, and

baling, and boxing of the tobacco leaves in what is commonly

referred to as a stripping room.   A good stripping room is

essential to tobacco producers for preparation of the tobacco for

market.   A stripping room need not be located inside a tobacco

barn.   In fact, it is preferable to haul the unstripped tobacco

to a more suitable location.   However, smaller producers suffice

by temporarily enclosing a portion of their barn with plastic and

using a foldup bench and portable heat.   Petitioners chose this

latter option.
                               - 6 -


     The stripping room (or more appropriately in petitioners'

case, the "stripping area") is located in the center of the

Tobacco Barn.   It is 12 feet wide and 24 feet long.   It consists

of plywood stacked to form a work bench, a small machine used to

strip tobacco, and a hydraulic press used to bale tobacco.    The

stripping area is not always enclosed.    Only in cold weather do

petitioners enclose the stripping area, using plastic sheeting

and plywood to provide shelter.   It takes about a day to enclose

the stripping area.

     The Tobacco Barn is generally not used in petitioners'

tobacco business between March and July.    However, in some years,

a limited amount of tobacco may remain hanging in the Tobacco

Barn beyond February --for example when petitioners produce

tobacco in excess of their sales quota.    Petitioners occasionally

use the Tobacco Barn to store farm equipment.

     Petitioners own two other barns.    These other barns are

referred to by petitioners as "combination barns".     Combination

barns are of a sturdier design than the Tobacco Barn and may be

used to cure and process tobacco, as well as house cattle or

store grain.

     On their 1994 Federal income tax return, petitioners

reported the cost of the Tobacco Barn as $16,730 and elected to

deduct $6,754 of that amount under section 179.    Petitioners

claimed depreciation for the balance of the cost of the Tobacco
                                - 7 -


Barn using the midquarter convention, the 150-percent declining

balance method, and a 10-year recovery period.    In the notice of

deficiency, respondent determined that the $16,730 cost consisted

of the cost of two separate assets: (1) The Tobacco Barn, and (2)

a concrete septic tank.3   Respondent determined that the Tobacco

Barn was not entitled to section 179 treatment and that the

applicable recovery for the Tobacco Barn is 20 years.

                               OPINION

Issue 1.    Deduction Under Section 179

     Section 179(a) allows a taxpayer to deduct, rather than

capitalize, the cost of certain property up to specified dollar

limits as specified in section 179(b).    The deduction is

allowable for the entire cost or a portion of the cost of the

property.    See sec. 1.179-1(b), Income Tax Regs.   As pertinent

here, section 179 property is any tangible property that is

section 1245 property as defined in section 1245(a)(3).      See sec.

179(d)(1).    Section 1245 property is defined, by section

1245(a)(3) as, inter alia:

            (A) personal property,

          (B) other property (not including a building or its
     structural components) but only if such other property is
     tangible and * * *



     3
        As previously mentioned, petitioners have conceded the
adjustment regarding the concrete septic tank.
                                - 8 -


               (i) was used as an integral part of manufacturing,
          production, or extraction * * * , or

                    *   *   *    *      *   *   *

               (iii) constituted a facility used in connection
          with any of the activities referred to in clause (i)
          for the bulk storage of fungible commodities * * *
          [or]

                    *   *   *    *      *   *   *

          (D) a single purpose agricultural or horticultural
     structure (as defined in section 168(i)(13)),

     Section 1.1245-3(c)(2), Income Tax Regs., provides that

language used to describe property in section 1245(a)(3)(B) shall

have the same meaning as when used in paragraph (a) of section

1.48-1, Income Tax Regs., and the terms "building" and

"structural components" shall have the meanings assigned to those

terms in paragraph (e) of section 1.48-1, Income Tax Regs.

     In Hospital Corp. of Am. v. Commissioner, 109 T.C. 21, 50-51

(1997), we held that in deciding whether a property is section

1245 property, Congress intended the same tests to be used as

were applied for purposes of deciding whether property was

"section 38 property" for purposes of the investment tax credit

under section 48 prior to the amendment of section 48 in the

Omnibus Budget Reconciliation Act of 1990 (OBRA), Pub. L. 101-
                               - 9 -


508, sec. 11813(a), 104 Stat. 1388-536, 1388-541 (effective with

respect to property placed in service after December 31, 1990).4


     4
        Henceforth, all references to sec. 48 are to that section
previous to its amendment by the Omnibus Budget Reconciliation
Act of 1990, Pub. L. 101-508, sec. 11813(a), 104 Stat. 1388-536,
1388-541.

     Prior to its amendment, sec. 48(a)(1) provided as follows:

          (1) In General.--* * * the term "section 38 property"
     means--

          (A) tangible personal property * * *, or

          (B) other tangible property (not including a
     building and its structural components) but only if
     such property--

               (i) is used as an integral part of
          manufacturing, production, or extraction
          * * *, or

               *   *   *   *   *   *   *

               (iii) constitutes a facility used in
          connection with any of the activities
          referred to in clause (i) for the bulk
          storage of fungible commodities * * *, or

               *   *   *   *   *   *   *

          (D) single purpose agricultural or horticultural
     structures; * * *

     Sec. 48(p)(3), defined the term "single purpose
horticultural structure" as follows:

          (A) a greenhouse specifically designed,
     constructed, and used for the commercial production of
     plants, and

          (B) a structure specifically designed, constructed and
     used for the commercial production of mushrooms.
                                                   (continued...)
                                - 10 -




     Petitioners contend that the Tobacco Barn qualifies as

section 1245 property as the term in defined under both section

1245(a)(3)(B) and section 1245(a)(3)(D).

     A.   Section 1245(a)(3)(B)

     Petitioners' first contention is that the Tobacco Barn is a

structure, other than a building, used as an integral part of

manufacturing or production of tobacco, and meets the

requirements of section 1245(a)(3)(B)(i).    Alternatively,

petitioners contend that the Tobacco Barn is a structure, other

than a building, used as a facility in connection with the

manufacturing or production of tobacco for the bulk storage of

tobacco and meets the requirements of section 1245(a)(3)(B)(iii).

Respondent argues that the Tobacco Barn is a "building" within



     4
      (...continued)
     Further, sec. 48(p)(4) provided:

     (4) Structures Which Include Work Space.--An enclosure or
  structure which provides work space shall be treated as a
  single purpose * * * horticultural structure only if such work
  space is solely for--

               (A) the stocking, caring for, or collecting of
           * * * plants * * * or their produce,

                 (B) the maintenance of the enclosure or structure,
           and

               (C) the maintenance or replacement of the equipment
           or stock enclosed or housed therein.
                               - 11 -


the meaning of the exclusion of section 1245(a)(3)(B).5     We agree

with respondent.

     The term "building" as used in section 48, and therefore as

applicable to our discussion, "has caused much consternation

among taxpayers and has produced a correspondingly large amount

of litigation."    See Scott Paper Co. v. Commissioner, 74 T.C.

137, 177 (1980).   As a result, the term "building" has become a

term of art.   See id.   In this regard, it has long been

established that used in the context of section 48, Congress

intended that the term "building" be given its "commonly accepted

meaning, that is, a structure or edifice enclosing a space within

its walls, and usually covered by a roof."   H. Rept. 1447, 87th

Cong., 2d Sess. (1962), 1962-3 C.B. 405, 516; S. Rept. 1881, 87th

Cong., 2d Sess. (1962), 1962-3 C.B. 707, 858-859; see, e.g.,

Yellow Freight Sys., Inc. v. United States, 538 F.2d 790, 795-796

(8th Cir. 1976); Munford, Inc. v. Commissioner, 87 T.C. 463

(1986), affd. 849 F.2d 1398 (11th Cir. 1988); Samis v.

Commissioner, 76 T.C. 609, 617 (1981); Valmont Indus., Inc. v.

Commissioner, 73 T.C. 1059, 1072 (1980); Satrum v. Commissioner,

62 T.C. 413, 416 (1974).


     5
        In the alternative, respondent argues that the Tobacco
Barn does not meet a number of the other requirements of sec.
1245(a)(3)(B)(i), (iii). However, because we agree with
respondent that the Tobacco Barn is a "building", we need not
consider these alternative arguments.
                              - 12 -


     Section 1.48-1(e)(1), Income Tax Regs., defines the term

"building" as follows:

     The term "building" generally means any structure or
     edifice enclosing a space within its walls, and usually
     covered by a roof, the purpose of which is, for
     example, to provide shelter or housing, or to provide
     working, office, parking, display, or sales space. The
     term includes, for example, structures such as
     apartment houses, factory and office buildings,
     warehouses, barns, garages, railway or bus stations,
     and stores. * * * The term "building" does not
     include such structures as oil and gas storage tanks,
     grain storage bins, silos, fractionating towers, blast
     furnaces, basic oxygen furnaces, coke-ovens, brick
     kilns, and coal tipples.

     This regulation has been interpreted to establish a two-part

test that considers both "appearance" and "function" in

determining whether a particular structure is a "building".

     The appearance test, as its name implies, considers whether

the structure has the appearance of a building in the ordinary

sense.   See Yellow Freight Sys., Inc. v. United States, supra at

797-798; cf. A.C. Monk & Co. v. United States, 686 F.2d 1058 (4th

Cir. 1982).   The testimony and photographs in the record clearly

show that the Tobacco Barn resembles a building in appearance.

Thus, the Tobacco Barn would be considered a building under the

appearance test of section 1.48-1(e)(1), Income Tax Regs.

     The scope of the term "building" is limited to structures

used for purposes or functions similar to those enumerated in

section 1.48-1(e)(1), Income Tax Regs.   See Munford, Inc. v.

Commissioner, supra at 479; Catron v. Commissioner, 50 T.C. 306,
                              - 13 -


311 (1968).   Thus the functional test is described as one that

inquires (1) Whether the purpose of the structure at issue is a

purpose "ejusdem generis" to the purposes described by example in

section 1.48-1(e)(1), Income Tax Regs., and (2) whether the

structure performs a function similar to those structures

enumerated in section 1.48-1(e)(1), Income Tax Regs., as

buildings; i.e., apartment houses, factory and office buildings,

warehouses, barns, garages, railway or bus stations, and stores.

See Consolidated Freightways, Inc. v. Commissioner, 74 T.C. 768,

795 (1980), affd. in part and revd. in part on another issue 708

F.2d 1385 (9th Cir. 1983).

     Thus, the Court must consider whether the structure

functions like a building; i.e., does it "'provide shelter * * *

or furnish working * * * space, or exist for another purpose that

could be listed with the enumerated purposes without violating

the constraining rules of ejusdem generis.'"   See Consolidated

Freightways, Inc. v. Commissioner, 708 F.2d 1385, 1388 (9th Cir.

1983), affg. in part and revg. in part on another issue 74 T.C.

768 (1980).

     In applying the functional test, one of the major focuses of

inquiry is whether the structure provides working space for

employees that is more than merely incidental to the primary

function of the structure.   See, e.g., Brown-Forman Distillers

Corp. v. United States, 205 Ct. C1. 402, 418, 499 F.2d 1263, 1271
                               - 14 -


(1974); Munford Inc. v. Commissioner, supra at 480; Scott Paper

Co. v. Commissioner, supra at 178; Valmont Indus., Inc. v.

Commissioner, supra at 1072; Catron v. Commissioner, supra at

316; Brown & Williamson Tobacco Corp. v. United States, 369 F.

Supp. 1283 (W.D. Ky. 1973), affd. per curiam 491 F.2d 1258 (6th

Cir. 1974).    In this regard, it is appropriate to consider both

the quantity and quality of the human activity within the

structure.    See Consolidated Freightways, Inc. v. United States,

223 Ct. Cl. 443, 461, 620 F.2d 862, 873 (1980); Munford, Inc. v.

Commissioner, supra at 480; Consolidated Freightways, Inc. v.

Commissioner, 74 T.C. at 795; Satrum v. Commissioner, supra at

417.    If the nature of work performed within the structure is

merely supportive and ancillary to the function of the structure,

then the structure is not considered as providing "working

space."    See Valmont Indus., Inc. v. Commissioner, supra at 1074.

       In Valmont Indus., Inc. v. Commissioner, supra at 1073, we

considered whether a structure provided "working space".

Considering the quantity and the nature of the employee activity

performed in two galvanizing facilities, we stated:

       the proper inquiry is whether "a substantial number of
       employees were frequently and regularly occupied" in
       the facility. This determination will necessarily
       depend upon the nature of the business venture housed
       within that structure. [Citation omitted.]

       We went on to hold that in the context of that taxpayer's

galvanizing operation, work performed by 10 to 16 employees
                               - 15 -


within the structure on a regular basis was substantial in

quantity and nature.

     Therefore, the galvanizing structure was held to be a

"building".   Petitioners contend that the Tobacco Barn was

designed and constructed as a curing facility.    They assert that

as a curing facility, the Tobacco Barn is not similar to those

structures enumerated in section 1.48-1(e)(1), Income Tax Regs.,

as "buildings".

     There is no dispute that petitioners and their employees

performed many chores in the Tobacco Barn.    The type of chores

performed in the Tobacco Barn was twofold.    First, petitioners

and their employees spent about 6 weeks transporting tobacco from

the field to the Tobacco Barn and hanging the tobacco sticks

therein.    We are satisfied that this activity would not lead to

the conclusion that the Tobacco Barn provided "working space".

     However, the Tobacco Barn provided "working space" beyond

that ancillary to the function of the structure as a curing

facility.   For about 5 months of the year, petitioners and

certain employees used the Tobacco Barn on a full-time basis to

prepare the tobacco for sale by stripping, grading, baling, and

boxing the tobacco.    Given the nature of petitioners' tobacco

manufacturing business, human activity in stripping, grading,

baling, and boxing the tobacco was regular and frequent, and

exceeded the amount of human activity required in the curing
                                - 16 -


process.   Thus, the Tobacco Barn provided working space that was

more than merely incidental to the function of the structure as a

curing facility.

     Petitioners rely heavily on Brown & Williamson Tobacco Corp.

v. United States, supra.   Petitioners' reliance on this case is

misplaced.   In Brown & Williamson Tobacco Corp. v. United States,

369 F. Supp. at 1287, the District Court specifically relied on

the fact that the tobacco shed did not provide "working space"

other than "bringing in and out of the tobacco hogsheads and

their placement in the racks created for them and their removal

therefrom" to hold that the tobacco shed in issue did not

constitute a "building".   The District Court indicated that the

work involved in lifting tobacco hogsheads to storage racks was

ancillary to the function of the structure as a storage facility.

Obviously, petitioners' case is distinguishable from Brown &

Williamson Tobacco Corp. v. United States, supra, in that the

Tobacco Barn provided frequent and regular "work space" in the

context of petitioners' tobacco manufacturing business.

     In a number of cases, this Court has considered a discrete

area of a larger structure to be "a structure other than a

building", while holding other discrete areas of the same

structure to be a "building".    See, e.g., Munford Inc. v.

Commission er, 87 T.C. at 481 (each of three distinct areas, a

truck loading platform, a rail-loading platform and a
                                - 17 -


refrigerated area were considered separately under the functional

test); Central Citrus Co. v. Commissioner, 58 T.C. 365 (1972)

(sweet rooms of permanent construction that were closed off from

the remainder of the plant by a floor-to-ceiling wall were

considered separately); Catron v. Commissioner, 50 T.C. 306

(1968) (cold-storage room sealed off from rest of structure by a

floor-to-ceiling wall was considered separately).

     Petitioners' case, however, is factually distinguishable

from the above-mentioned cases because the stripping area in the

Tobacco Barn is not a distinct, nor permanent, structure.     During

good weather, the area is not partitioned by any material.     In

cold weather, petitioners put up a temporary "room" by hanging

plastic sheeting and plywood to wood beams providing structural

support for the Tobacco Barn.     Under these circumstance, the

stripping area cannot be considered distinct from the rest of the

Tobacco Barn, and the work performed in that area must be

considered work performed in the Tobacco Barn.

     Based on the foregoing, the Tobacco Barn is a "building" and

therefore is not section 1245 property within the meaning of

section 1245(a)(3)(B).

     B.   Section 1245(a)(3)(D)

     Alternatively, petitioners contend that the Tobacco Barn is

a single purpose horticultural structure as defined in section
                               - 18 -


1245(a)(3)(D).   Respondent contends that the Tobacco Barn is a

general purpose structure.   We agree with respondent.

     Section 168(i)(13)(B)(ii) defines a "single purpose

horticultural structure" as:

          (I) a greenhouse specifically designed,
     constructed, and used for the commercial production of
     plants, and

          (II) a structure specifically designed,
     constructed, and used for the commercial production of
     mushrooms.

     In addition, section 168(i)(13)(B)(iii) provides:

     An enclosure or structure which provides work space
     shall be treated as a single purpose * * *
     horticultural structure only if such work space is
     solely for--

               (I) the stocking, caring for, or
          collecting of livestock or plants (as the
          case may be) or their produce,

               (II) the maintenance of the enclosure or
          structure, and

               (III) the maintenance or replacement of
          the equipment or stock enclosed or housed
          therein.

     Thus, in essence, section 168(i)(13)(B) requires that in

order to be a "horticultural structure", an asset must meet three

tests.

     First, the structure must be specifically designed and

constructed for permissible purposes (i.e., the "specific design

test").   See sec. 1.48-10(c)(1)(i), Income Tax Regs.    The only

permissible purposes for a single purpose horticultural structure
                              - 19 -


are "The commercial production of plants (including plant

products such as flowers, vegetables, or fruit) in a greenhouse"

or "the commercial production of mushrooms."    Sec. 1.48-10(c)(2),

Income Tax Regs. (Emphasis added).     It is clear that the Tobacco

Barn was not specifically designed and constructed for either of

these permissible purposes.   The Tobacco Barn is not a greenhouse

in which plants or plant products such as flowers, vegetables or

fruits are commercially produced.    See sec. 1.48-10(c)(2)(i),

Income Tax Regs.   Neither is it a structure used in the

commercial production of mushrooms.    See sec. 1.48-10(c)(2)(ii),

Income Tax Regs.   The Tobacco Barn therefore does not meet the

specific design test.6

     Second, a "horticultural structure" must be exclusively used

for (i.e., the "exclusive use test") the above-enumerated

purposes.   See sec. 1.48-10(c)(1)(ii), Income Tax Regs.   Under



     6
        Although not dispositive, we find petitioners'
characterization of the Tobacco Barn as a "barn" to be probative
in evaluating the function of the structure. Legislative history
and case law indicate that "general purpose agricultural
structures such as barns and other farm structures which can be
adapted to a variety of uses" do not constitute single purpose
horticultural structures. S. Rept. 95-1263 at 117 (1978), 1978-3
C.B. (Vol. 1) 315, 415; see Sherwood v. Commissioner, T.C. Memo.
1988-544. Petitioners stored farm equipment in the Tobacco Barn.
Although not clear at what financial cost, the Tobacco Barn could
also be made foundationally stronger and could thereafter house
cattle. Thus, even though we do not base our holding on this
issue, these facts suggest that the Tobacco Barn could be adapted
to a variety of uses and therefore is a "general purpose"
structure.
                              - 20 -


the exclusive use test, using the structure to process or market

the product is "nonpermissible".   See Oregon Trail Mushroom Co.

v. Commissioner, T.C. Memo. 1992-293; sec. 1.48-10(e)(1)(i)(A),

Income Tax Regs.   Section 1.48-10(e)(1)(iv), Income Tax Regs,

provides that "a horticultural structure that contains an area

for processing plants or plant products will fail the exclusive

use test because there is a nonpermissible use."

     To decide whether the Tobacco Barn meets the exclusive use

test, we must therefore consider whether the curing, stripping,

grading, baling and boxing of the tobacco leaves constitute

"production" activities or whether any is a "nonpermissible" use

of that structure.

     In Oregon Trail Mushroom Co. v. Commissioner, T.C. Memo.

supra, the issue was whether certain structures were used for the

commercial production of mushrooms.    In that case, we held that a

structure used in the "production" of mushrooms is not merely a

structure where mushrooms actually grow.   Rather, we held that a

structure used to pasteurize compost, i.e., "to kill all

organisms so that only mushrooms will grow", constituted a

structure used in the production of mushrooms.    We held that the

pasteurization step was a necessary step and to eliminate that

step would reduce or destroy the mushroom crop.    See id.

Although in Oregon Trail Mushroom Co. v. Commissioner, supra, we

gave broad interpretation to the term "production facility", we
                                - 21 -


cannot define that term as broadly in the context of petitioner's

Tobacco Barn.   The distinction lies in the fact that the Tobacco

Barn was not used in the production of mushrooms.    Congress chose

that in the context of mushroom production, a single purpose

horticultural structure would be any "structure" specifically

designed and constructed for that purpose, whereas in the context

of plant production, a single purpose horticultural structure

would be any "greenhouse" specifically designed and constructed

for that purpose.   See sec. 168(i)(13)(B)(ii).   By using the word

"greenhouse", we think that Congress intended that only "plant"

production activities of the type performed in a "greenhouse"

would qualify as plant production activities.     Thus, petitioners'

Tobacco Barn, a structure other than a greenhouse, used in the

curing, stripping, grading, baling, and boxing of tobacco--

activities which we think constitute market preparation--does not

meet the "exclusive use" test.

     In addition, the Tobacco Barn was extensively used in making

the tobacco ready for market.    As mentioned, work space in a

single purpose horticultural structure must be limited to that

necessary to stock, care for, or collect plants or their

products.   See sec. 168(i)(13)(B)(iii).   As provided by section

1.48-10(f)(2), Income Tax Regs., the term "stocking, caring for,

or collecting" plants includes ancillary postproduction

activities.
                              - 22 -


     However, the curing, stripping, grading, baling, and boxing

of the tobacco leaves are not "ancillary post-production

activities".   See sec. 1.48-10(f)(2), Income Tax Regs.   Although

"gathering, sorting, loading," and "packing" activities when

"carried on in conjunction with" and "ancillary" to other

permissible purposes, do not disqualify a structure as a "single

purpose agricultural structure", they cannot constitute the sum

total of the activities performed in the structure.    Id.   Because

we are not persuaded that any of the activities performed in the

Tobacco Barn, i.e., the curing, stripping, grading, baling, and

boxing of the tobacco leaves, constitute the commercial

production of plants in a greenhouse, we cannot hold that such

activities simply constitute "ancillary post production"

activities.    See id.

     Third, for a structure to be a "single purpose

horticultural" structure, it must satisfy an "actual use" test.

See sec. 1.48-10(e)(2), Income Tax Regs.    However, because we

have held that the Tobacco Barn does not meet the "specific

design" or the "exclusive use" test, we need not consider whether

it meets the "actual use" test.

     Based on the foregoing, we hold that the Tobacco Barn is not

a single purpose horticultural structure.    It therefore follows

that the Tobacco Barn is not section 179 property.
                               - 23 -


Issue 2.    Recovery Period

       We must decide the applicable recovery period for the

Tobacco Barn.    Respondent determined that the Tobacco Barn is 20-

year property.    Petitioners contend that the Tobacco Barn is 10-

year or in the alternative 15-year property.    We agree with

respondent.

       The applicable recovery period is an element in the

calculation of the deduction for depreciation allowed by section

167.    As pertinent here, section 168(c) provides the following

applicable recovery periods:

       Type of property              Applicable recovery period

       10-year property              10 years
       15-year property              15 years
       20-year property              20 years

       Section 168(e)(1) generally defines 10-year property as

property having a class life of 16 years or more, but less than

20 years, 15-year property as property having a class life of 20

years or more, but less than 25 years, and 20-year property as

property having a class life of 25 or more years.    "Class life",

as defined by section 168(i)(1), is determined by reference to

former section 167(m), as in effect prior to its repeal by the

OBRA sec. 11812(a), 104 Stat. 1388-534.    Section 167(m) provided

for a depreciation allowance based upon the class life prescribed

by the Secretary of the Treasury or his delegate.
                                  - 24 -


     The class lives of depreciable assets can be found in a

series of revenue procedures issued by the Commissioner.       See

sec. 1.167(a)-11(b)(4)(ii), Income Tax Regs.     The revenue

procedure in effect for the years in issue in this case is Rev.

Proc. 87-56, 1987-2 C.B. 674.      As pertinent here, Rev. Proc. 87-

56, 1987-2 C.B. 677, provides the following asset guideline

classes:

    00.3 Land Improvements:

           Includes improvements directly to or added to land,
           whether such improvements are section 1245 property or
           section 1250 property, provided such improvements are
           depreciable. Examples of such assets might include
           sidewalks, roads, canals, waterways, drainage
           facilities, sewers, * * * wharves and docks, bridges,
           fences, landscaping, shrubbery, or radio and television
           transmitting towers. Does not include land improvements
           that are explicitly included in any other class, and
           buildings and structural components as defined in
           section 1.48-1(e) of the regulations. * * *

                 *   *   *    *    *   *   *

    01.3 Farm buildings except structures included in Class 01.4

    01.4 Single purpose agricultural or horticultural
         structures (within the meaning of section 48(p) of the
         Code).

     Assets includable in class 00.3 have a class life of 20

years and, by virtue of section 168(e)(1) are 15-year property,

with an applicable recovery period of 15 years.     See sec.

168(c)(1).    Assets includable in class 01.3 have a class life of

25 years and, by virtue of section 168(e)(1) are 20-year

property, with an applicable recovery period of 20 years.       See
                              - 25 -


id.   Finally, single purpose agricultural or horticultural

structures are, by virtue of section 168(e)(3)(D)(i), 10-year

property, with an applicable recovery period of 10 years.     See

id.

      Respondent contends that the Tobacco Barn is a "farm

building", a class 01.3 asset, and therefore has a recovery life

of 20 years.   Petitioners contend that the Tobacco Barn has a

recovery period of 10 years because it is a single purpose

horticultural structure.   As discussed above, the Tobacco Barn is

not a single purpose horticultural structure and therefore does

not have a 10-year recovery period as prescribed under section

168(e)(3)(D)(i).

      In the alternative, petitioners contend that the Tobacco

Barn is a "land improvement", a class 00.3 asset, and therefore

has a recovery period of 15 years.     As discussed above, the

Tobacco Barn is a building as defined under section 1.48-1(e),

Income Tax Regs.   Class 00.3 specifically excludes "buildings".

Therefore, the Tobacco Barn does not have a 15-year recovery

period by virtue of being includable in class 00.3.     Petitioners

have not asserted that the Tobacco Barn is 10-year or 15-year

property by virtue of being includable in any other class of

assets.   We therefore sustain respondent on this issue.
                               - 26 -


     To reflect our disposition of the disputed issues, as well

as the parties' concessions,



                               Decision will be entered

                         under Rule 155.
