[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.48-10]

[Page 366-370]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.48-10  Single purpose agricultural or horticultural structures.

    (a) In general--(1) Scope. Under section 48(a)(1)(D), ``section 38 
property'' includes single purpose agricultural and horticultural 
structures, as defined in section 48 (p) and paragraphs (b) and (c) of 
this section. These structures are subject to a special rule for 
recapture of the credit. See paragraph (g) of this section. For the 
relation of this section to section 48(a)(1)(B) (other tangible 
property) and to sections 1245 and 1250 (depreciation recapture), see 
paragraph (h) of this section.
    (2) Effective date. The provisions of section 48(a)(1)(D) and this 
section apply to open taxable years ending after August 15, 1971.
    (b) Definition of single purpose agricultural structure--(1) In 
general. Under section 48(p)(2), a single purpose agricultural structure 
is any structure or enclosure that meets all of the following 
requirements:
    (i) It is specifically designed and constructed for permissible 
purposes (as defined in paragraph (b)(2) of this section). See paragraph 
(d) of this section for the rule regarding ``specifically designed and 
constructed''.
    (ii) It is specifically used exclusively for those permissible 
purposes. See paragraph (e) of this section for the rules regarding 
``specifically used''.
    (iii) It houses equipment necessary to house, raise, and feed 
livestock and their produce. See paragraphs (b)(3) and (4) of this 
section.
    (2) Permissible purposes. The following are the only permissible 
purposes for a single purpose agricultural structure:
    (i) Housing, raising, and feeding a particular type of livestock 
and, at the taxpayer's option, its produce. The term ``housing, raising, 
and feeding'' includes the full range of livestock breeding and raising 
activities, including ancillary post-production activities (as defined 
in paragraph (f) of this section). Thus, for example, use of a structure 
for breeding livestock, or for producing eggs or livestock, is 
permitted. The structure may also be used for storing feed or machinery, 
but more than strictly incidental use for these purposes will disqualify 
the structure. See paragraph (e)(1) of this section. For the special 
rule concerning the permissible purposes for a milking parlor, see 
paragraph (b)(2)(iii) of this section.
    (ii) Housing required equipment (including any replacements) as 
defined in paragraph (b)(4) of this section.
    (iii) If the structure is a dairy facility, it will qualify if it is 
used for: (A) activities consisting of the production of milk or of the 
production of milk and the housing, raising, or feeding dairy cattle, 
and (B) housing equipment (including any replacements) necessary for 
these activities. The term ``housing, raising, or feeding'' includes the 
full range of dairy cattle breeding and raising activities including 
ancillary post-production activities (as defined in paragraph (f) of 
this section). The structure may also be used for storing feed or 
machinery, but, more than incidental use for these purposes will 
disqualify the structure. See paragraph (e)(1) of this section.
    (3) Livestock; particular type of livestock--(i) Livestock. 
Livestock qualifying as ``section 38 property'' under Sec. 1.48-1(l) 
constitutes livestock for purposes of this section. Thus, for example, 
horses are not livestock for purposes of this section since they do not 
qualify as ``section 38 property'' under Sec. 1.48-1(l). Under section 
48(p)(6) poultry constitutes livestock for purposes of section 
48(a)(1)(D). The term ``livestock'' includes the offspring of livestock. 
``Livestock'' is distinguished from the produce of livestock, such as 
milk and eggs held for sale. For purposes of this section, eggs held for 
hatching and newborn livestock are considered livestock. A structure 
used solely to house produce of livestock or equipment necessary to 
house produce of livestock will not qualify as a single purpose 
agricultural structure. Thus, for example, a dairy facility used solely 
for storing milk will not qualify.

[[Page 367]]

    (ii) Particular type of livestock. A structure qualifies as a single 
purpose agricultural structure only if it is specifically designed, 
constructed, and used exclusively for permissible purposes with respect 
to one particular type of livestock. For purposes of this section, each 
species is a different type except that all species of poultry are 
considered to be of a single type. Thus, for example, a structure 
specifically designed and constructed as a single purpose hog-raising 
facility will not qualify if it is used to raise dairy cows, but a 
structure specifically designed, constructed, and used to raise poultry 
may house, raise, and feed both chickens and turkeys.
    (4) Required equipment rule. (i) A single purpose agricultural 
structure must also house equipment necessary to house, raise, and feed 
the livestock (``required equipment''). Required equipment must be an 
integral part of the structure, and includes, but is not limited to, 
equipment necessary to contain the livestock, to provide them with water 
or feed, and to control the temperature, lighting, and humidity of the 
interior of the structure. For purposes of this section, equipment is an 
integral part of the structure if it is physically attached to or a part 
of the structure. The useful life of the structure, however, need not be 
contemporaneous with the life of the equipment it houses. A structure 
without required equipment is not a single purpose agricultural 
structure.
    (ii) A single purpose agricultural structure may, but is not 
required to, house equipment (for example, loading chutes) necessary to 
the conduct of ancillary post-production activities as defined in 
paragraph (f) of this section.
    (5) Livestock structure. In section 48(p)(2), the terms ``single 
purpose livestock structure'' and ``single purpose agricultural 
structure'' are interchangeable.
    (c) Definition of single purpose horticultural structure--(1) In 
general. Under section 48(p)(3), a single purpose horticultural 
structure is any structure that meets both of the following 
requirements:
    (i) It is a greenhouse or other structure specifically designed and 
constructed for permissible purposes (as defined in paragraph (c)(2) of 
this section). See paragraph (d) of this section for the rule regarding 
``specifically designed and constructed.''
    (ii) It is specifically used exclusively for those permissible 
purposes. See paragraph (e) of this section for the rules regarding 
``specifically used.''
    (2) Permissible purposes. The following are the only permissible 
purposes for a single purpose horticultural structure:
    (i) The commercial production of plants (including plant products 
such as flowers, vegetables, or fruit) in a greenhouse.
    (ii) The commercial production of mushrooms.
    (iii) A single purpose horticultural structure also may, but is not 
required to, house equipment necessary to carry out these permissible 
purposes listed in paragraphs (c)(2) (i) and (ii) of this section.
    (3) Ancillary post-production activities. The terms ``commercial 
production of plants'' and ``commercial production of mushrooms'' 
include ancillary post-production activities (as defined in paragraph 
(f) of this section).
    (d) Specifically designed and constructed. A structure is 
specifically designed and constructed if it is not economic to design 
and construct the structure for the intended qualifying purpose and then 
use the structure for a different purpose. For example, if a hog raising 
structure is designed and constructed in accordance with a standard set 
of plans for such a structure provided by the Department of Agriculture, 
it would not be economic to use the structure for purposes other than 
hog raising.
    (e) Specifically used. There are two aspects of the specific use 
requirement--exclusive use and actual use.
    (1) Exclusive use. (i) A structure qualifies as a single purpose 
agricultural or horticultural structure only if it is used exclusively 
for the permitted purposes by reason of which it qualified for the 
credit. Thus--
    (A) The structure may not be used for any nonpermissible purposes 
(for example, processing, marketing, or more than incidental use for 
storing feed or equipment) and

[[Page 368]]

    (B) It may not be put to any use other than the specific use by 
reason of which it qualifies for the credit.
    (ii) For purposes of this section, the term ``incidental use'' means 
a use which is both related and subordinate to the qualifying purpose. 
Thus, for example, if feed is stored in an agricultural structure which 
will be used for raising hogs, the feed must be used only for the hogs 
in order to be related to the qualifying purpose. In determining whether 
use of the structure for feed storage is subordinate to the qualifying 
purpose, all of the facts and circumstances must be considered, 
including, with respect to feed storage, the following:
    (A) Type of animal involved;
    (B) Number of, and consumption rate for, each animal;
    (C) Climate of area;
    (D) Total volume of storage area; and
    (E) Percentage of structure's total volume devoted to storage.
    (iii) It will be presumed that the storage function is not 
subordinate to the qualifying purpose of the structure if more than one-
third of the structure's total usable volume is devoted to storage. This 
presumption may be rebutted with clear and convincing evidence.
    (iv) A structure may fail the exclusive use test if either of the 
requirements of paragraph (e)(1)(i) of this section is not met. Thus, 
for example, 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. An agricultural structure that is 
used to house more than one particular type of livestock fails the 
exclusive use test for the same reason. A change in the use of an 
agricultural structure from one species of livestock to another will 
cause the structure to fail the exclusive use test when the change 
occurs. Thus, for example, a hog-raising facility which qualified for 
the credit when it was placed in service cannot later be modified and 
used for producing broiler chickens even if the structure would have 
qualified for the credit if it had been originally designed, 
constructed, and used exclusively for producing broiler chickens.
    (2) Actual use. (i) A single purpose agricultural or horticultural 
structure also must actually be used for the permissible purpose by 
reason of which it qualifies for the credit. ``Actual use'' means 
``placed in service'' (as defined in Sec. 1.46-3(d)). Mere vacancy, on a 
temporary basis, will not disqualify the structure. Thus, for example, a 
structure that is designed and constructed as a hog-raising structure 
will not qualify if it is never placed in service for raising hogs. 
However, a turkey-raising facility will not be disqualified if the 
turkeys are all sent to a packing plant in November and the structure 
remains vacant until the next spring when newly hatched turkeys are 
placed in the structure to be raised.
    (ii) For purposes of this section, ``vacancy on a temporary basis'' 
includes temporary vacancy caused by market fluctuations or other 
economic considerations and vacancy on a seasonal basis.
    (f) Work space; ancillary post-production activities--(1) 
Permissible work space. Under section 48(p)(4), a single purpose 
agricultural or horticultural structure may contain work space only if 
it is used for--
    (i) Stocking, caring for, or collecting livestock, plants, or 
mushrooms,
    (ii) Maintenance of the structure, or
    (iii) Maintenance or replacement of the equipment or stock enclosed 
by or contained in the structure. Thus, for example, an eligible 
structure may not contain space devoted to processing or marketing or 
other nonpermissible purposes.
    (2) Ancillary post-production activities. The term ``stocking, 
caring for, or collecting'' the livestock, plants, or mushrooms includes 
ancillary post-production activities. These activities, therefore, 
constitute permissible purposes when carried on in conjunction with 
other permissible purposes, and a qualifying structure may contain work 
space devoted to such activities. Ancillary post-production activities 
include gathering, sorting, and loading livestock, plants, and mushrooms 
and packing unprocessed plants, mushrooms, and the live offspring and 
unprocessed produce of the livestock. Ancillary post-production 
activities do not include processing activities, such as slaughtering or 
packing meat, nor do they include marketing activities.

[[Page 369]]

    (g) Special rule for recapture under section 47. Under section 
48(p)(5), if a structure which qualifies for the credit under this 
section becomes ineligible because it ceases to be held for the specific 
use by reason of which it qualified (or it is used for other than that 
qualifying use) before the end of the applicable estimated useful life 
or period specified in section 47(a), then the investment credit 
previously allowed with respect to the structure may be partially or 
entirely recaptured under section 47. Unlike other property to which 
section 47 applies, single purpose structures may not be converted from 
one permissible use to another without recapture. See subparagraph 
(e)(2) of this section.
    (h) Relationship to other sections--(1) Relation to section 
48(a)(1)(B). All structures satisfying the requirements of section 
48(a)(1)(B) and (a)(1)(D) will be considered to qualify under either 
provision.
    (2) Relationship to sections 1245 and 1250. For purposes of 
depreciation recapture, property to which section 48(a)(1)(D) applies is 
section 1245 property, except that property placed in service prior to 
January 1, 1981, may, at the option of the taxpayer, be treated as 
section 1250 property if depreciation deductions allowed were not under 
one of the methods authorized only for section 1245 property.
    (i) [Reserved]
    (j) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. A constructs a rectangular structure for use as an egg-
producing facility. The structure has no windows. The walls and roof are 
made of corrugated steel and there is a door which is 4 feet wide and 8 
feet tall at each end of the structure. At the end of each wall are 
louvered openings approximately 4 feet high and 8 feet long. These 
openings house thermostatically controlled fans. In the center of the 
walls are manually operated fresh-air openings. Corrugated steel 
``curtains'' hang from the top of the openings so that the openings can 
be completely closed in cold weather, but the curtains can be propped 
open to admit fresh air. The building is well insulated. A has 
reinforced the roof with extra trusses and rafters and reinforced the 
building with extra wall studs. Two rows of cages are suspended from the 
rafters by thin steel girders and wires. The floor of the structure is a 
sloping concrete slab pierced with long troughs which run the length of 
the structure beneath the cages. The troughs are used for collection and 
disposal of chicken wastes. When this structure is placed in service it 
will qualify for an investment credit under this section.
    Example 2. B constructs a greenhouse for the commercial production 
of plants. The greenhouse is a rectangular structure with translucent 
fiberglass walls and roof. The structure is equipped with an automatic 
temperature and humidity control system. Pipes were installed to carry 
water and liquid fertilizer to the plants and to release minute amounts 
of carbon dioxide into the air. When the structure was originally placed 
in service B used the entire structure for growing flowers commercially. 
In September 1978, B began to use the structure for growing tomatoes. 
Because of the success of the venture, in January 1979, B began to use 
the entire structure for growing tomatoes. In February 1980, B set up a 
small counter with a cash register at one end of the structure so that 
workers could sell tomatoes to customers at the greenhouse. Until 
February 1980, the structure would qualify for the credit under this 
section. The change in use from growing flowers to growing tomatoes will 
not affect the eligibility of the structure. Once the cash register is 
installed, however, the structure fails to meet both the exclusive use 
test of paragraph (e)(1) of this section and the work space rule of 
paragraph (f) of this section since a single purpose structure may not 
be used for marketing activities.
    Example 3. C purchases a prefabricated structure and makes 
modifications so that the structure will meet C's requirements. C adds 
gates and constructs a partition which divides the structure into two 
parts. One part of the structure constitutes less than one-third of the 
total usable volume of the structure and is used to house feeder cattle 
while they are fed with hay. This part of the structure has a sloping 
concrete floor. The other part of the structure constitutes more than 
two-thirds of the total usable volume of the structure and is used to 
store the hay used to feed the cattle. This structure will not qualify 
for the credit since it fails the required equipment test. The structure 
does not contain equipment which is an integral part of the structure. 
This structure also fails the ``specifically designed and constructed'' 
test of paragraph (d) of this section since it would be economic to use 
the structure for purposes other than housing, raising, and feeding 
cattle (such as a general purpose barn, for example). Finally, the 
structure fails the incidental use test of paragraph (e) of this section 
because the storage function is presumptively not subordinate to the 
qualifying purpose since more than two-thirds of the structure's total 
usable volume is devoted to storage and none of

[[Page 370]]

the facts will serve to rebut the presumption.

(Secs. 7805 (68A Stat. 917, 26 U.S.C. 7805) and 38 (b) (76 Stat. 926, 26 
U.S.C. 38))

[T.D. 7900, 48 FR 32768, July 19, 1983; 48 FR 36448, Aug. 11, 1983]