Court case · 1985
Duaine v. Commissioner
T.C. Memo 1985-39
U.S. Tax Court
Mixed result
The facts
A fast-food restaurant's components were classified item by item for the investment credit. The list included the concrete foundation slab, kitchen wall and floor tiles, interior and exterior ornamental light fixtures, and the plumbing, gas lines, and electrical conduits running to kitchen equipment.
What the court decided
Per the IRS Pub 5653 case table: the foundation slab, the kitchen wall and floor tiles, and the interior and exterior ornamental lighting fixtures stayed section 1250 real property, while the plumbing, gas lines, and electrical conduits serving specific kitchen equipment qualified as section 1245 personal property.
Why it matters for your study: Restaurant authority for the hookups rule: the utility runs that exist for a specific machine can move to a short life even when the surrounding surfaces stay with the building. The IRS guide cites it with Morrison and Texas Instruments for the functional allocation approach.
Parts the case looked at
- concrete foundation slab
- kitchen wall and floor tiles
- interior and exterior ornamental lighting fixtures
- plumbing to equipment
- gas lines to equipment
- electrical conduits to equipment
Background
Duaine involved a fast-food restaurant in the investment credit era. Back then, the credit was available for tangible personal property (section 1245) but not for structural components of a building (section 1250). So courts had to sort building parts one at a time.
The disputed list here ran from the concrete foundation slab to kitchen wall and floor tiles, ornamental light fixtures inside and out, and the plumbing, gas lines, and electrical conduits feeding the kitchen equipment. The same personal-versus-real line drawn for the credit is the line cost segregation uses today.
What it established
Per the case table in IRS Pub 5653, dated January 24, 1985, the results split by function. The foundation slab stayed real property. The kitchen wall and floor tiles stayed real property. The interior and exterior ornamental lighting fixtures stayed real property.
But the plumbing, the gas lines, and the electrical conduits that served specific kitchen equipment qualified as section 1245 personal property. The reasoning is functional: those runs exist for the machines, not for the building. Pub 5653 cites Duaine alongside Texas Instruments and Morrison for exactly this allocation approach.
How it shows up in a study
Duaine is core restaurant authority, and it reaches any property with process equipment. When a study allocates a share of the plumbing, gas, or electrical systems to the equipment those systems serve, Duaine is one of the cases behind that allocation in Appendix A.
In practice that means tracing branch lines: the water line to the dish machine, the gas line to the fryer, the conduit to the walk-in cooler. The study measures or allocates those runs and claims them at the equipment's short life, while the building's general service systems stay at 39 years.
What it does not mean
Duaine does not make restaurant finishes short-life property. The court kept the slab, the kitchen tiles, and the ornamental light fixtures with the building. A study that sweeps tile and general lighting into 5-year buckets is claiming what this case denied.
It also is not a lighting case in the taxpayer's favor. The ornamental fixtures here stayed real property. Compare Shoney's South, where chandeliers and lanterns shown to be decor won. The difference is facts, which is why each line needs its own support.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Asset classification
- Outcome
- Mixed result
- Applies to
- Restaurant, QSR, Fast Food
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.