IRS Revenue Ruling
1997-29

  Code Sec. 168



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Retail motor fuels outlet. A retail motor fuels outlet is 15-year
property for depreciation purposes whether or not the taxpayer-owner is
the operator of the motor fuels business.


REV. RUL. 97-29

ISSUE

If a taxpayer is the owner, but not the operator, of a retail motor
fuels outlet, is the outlet 15-year property for depreciation purposes
under section 168(e)(3)(E) of the Internal Revenue Code?


FACTS

A retail motor fuels outlet may be owned by one entity and operated by
another entity. Often, the owner of the property leases the property to an
operator. In addition, businesses other than the motor fuels business may
operate in the same building. For example, an outlet building may contain
a restaurant or video arcade. These businesses may be owned and operated
by different taxpayers that make payments to the owner of the outlet
building or to a sublessor.


LAW AND ANALYSIS

Section 1120 of the Small Business Job Protection Act of 1996, Pub. L.
No. 104-188, 110 Stat. 1755 (1996) (the Act), amended section 168(e)(3)(E)
to provide that 15-year property includes any section 1250 property that
is a retail motor fuels outlet whether or not food or other convenience
items are sold at the outlet. The legislative history of the Act provides
that property will qualify as a retail motor fuels outlet if 50 percent or
more of the gross revenues generated from the property are derived from
petroleum sales, or 50 percent or more of the floor space in the property
is devoted to petroleum marketing sales. A motor fuels outlet of 1400
square feet or less qualifies as a retail motor fuels outlet under the Act
without application of either 50 percent test. S. Rep. No. 281, 104th
Cong., 2d Sess. 14-16 (1996).

Section 168(e)(3)(E) provides that any section 1250 property that
qualifies as a retail motor fuels outlet is 15-year property. There is no
distinction between an owner of a retail motor fuels outlet that also
operates the motor fuels business and an owner that does not operate the
motor fuels business. Accordingly, section 1250 property the use of which
meets the definition of a retail motor fuels outlet is treated as 15-year
property for depreciation purposes whether or not the owner is the
operator. In applying the 50-percent gross revenues test to determine if
the property qualifies as a retail motor fuels outlet, the owner of an
outlet building must aggregate the gross revenues of all businesses
operated in the outlet building whether or not such businesses are
operated by the owner.


HOLDING

A retail motor fuels outlet is 15-year property for depreciation
purposes under section 168(e)(3)(E) whether or not the taxpayer-owner is
the operator of the motor fuels business.


DRAFTING INFORMATION

The principal author of this revenue ruling is Mark Pitzer of the
office of Assistant Chief Counsel (Passthroughs and Special Industries).
For further information regarding this revenue ruling, contact Mark Pitzer
at (202) 622-3110 (not a toll-free call).

<<END RULING>>
 

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