Court case · 1987
Metro National Corp. v. Commissioner
T.C. Memo 1987-38
U.S. Tax Court
Mixed result
The facts
Commercial interior improvements were classified one part at a time: drywall and glass partitions, lighting, cabinets, sprinklers, and ceilings.
What the court decided
Going part by part, movable drywall partitions, certain lighting, and removable cabinets qualified as personal property. Restroom partitions, false ceilings, and sprinklers stayed real property.
Why it matters for your study: Authority for analyzing an office buildout or tenant improvement component by component instead of treating the whole buildout as one long-life asset.
Parts the case looked at
- drywall/glass partitions
- lighting
- cabinets
- sprinklers
- ceilings
Background
Metro National Corp. developed commercial property and made extensive interior improvements: partitions, lighting, cabinets, ceilings, and sprinklers.
The IRS position would have treated the buildout broadly as part of the building. The taxpayer fought for component-level analysis, asking the court to look at each item on its own.
The Tax Court decided the case in T.C. Memo 1987-38 and did exactly that: it went part by part.
What the court actually analyzed
The court tested each component against the structural component rules. Per the IRS audit guide's case table, the section 1245 winners included gypsum drywall partitions, exterior security lighting, interior grow lights, exterior accent lighting, and cabinets and hardware. Glass storefront partitions were split, partly section 1245 and partly section 1250.
The section 1250 losers were the toilet and restroom partitions, false ceilings with their lighting, and sprinkler heads.
The deciding facts were function and movability. Partitions designed to be relocated as tenants change behaved like equipment. Restroom partitions, ceilings, and sprinklers served the building permanently and stayed with it.
How it shows up in a study
Metro National is our authority for office buildouts and tenant improvement packages. In Appendix A it supports breaking a buildout into components instead of capitalizing the whole package on a 39-year life.
The specific calls track the case table: movable drywall partition systems and millwork-grade cabinets can support short lives, specialty and accent lighting gets analyzed separately from general illumination, and restroom partitions, ceilings, and sprinklers stay with the building.
The split result on glass storefront partitions is a useful teaching point with clients: even within one item type, part can qualify and part cannot. That is what honest component analysis looks like.
What it does not mean
Metro National does not say partitions always win. The same case put restroom partitions on the long schedule. The character of each partition, how it is built, attached, and used, decides the call.
It does not support claiming ceilings or fire sprinklers. Both lost here, and they lose consistently across the case law.
And as a Tax Court memorandum decision, it guides rather than binds. Its strength in practice comes from the IRS audit guide carrying its results, and from the discipline of applying its component-by-component method with real documentation.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Asset classification
- Outcome
- Mixed result
- Applies to
- Office, Commercial Tenant Improvements
- 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.