Court case · 1990
Morrison, Inc. v. Commissioner
891 F.2d 857 (11th Cir. 1990), aff'g T.C. Memo 1986-129
U.S. Court of Appeals, 11th Circuit
Mixed result
The facts
A cafeteria chain claimed the investment credit on dining-room and kitchen parts: kitchen piping and drainage, swinging service doors, decor window treatments, lattice millwork, and serving-line screens.
What the court decided
Restaurant parts were judged by what they actually do. Decorative items and kitchen-process gear qualified as personal property, and the appeals court approved allocating dual-use systems between the share serving equipment and the share serving the building.
Why it matters for your study: Restaurant authority for kitchen process equipment, decor, and customer-facing items, and one of the appellate anchors for functional allocation of electrical and plumbing systems.
Parts the case looked at
- emergency lighting
- kitchen panels/piping/drainage
- Eliason doors
- decor window treatments
- lattice millwork
- customer line screens
- kitchen heaters
Background
Morrison, Inc. ran a chain of cafeterias. It claimed the investment credit on a long list of dining room and kitchen components: piping and drainage, swinging service doors, window treatments, lattice millwork, serving line screens, and shares of the electrical system.
The Tax Court decided the case first in T.C. Memo 1986-129. The Eleventh Circuit affirmed at 891 F.2d 857 (1990).
The appeal mattered beyond restaurants. It squarely presented the question of whether a shared electrical system can be split between the part serving equipment and the part serving the building.
What the court actually analyzed
The courts judged each item by what it actually does. Per the IRS audit guide's case table, the winners at section 1245 included emergency lighting, kitchen electrical panel boards, kitchen water piping, Eliason doors, decor window treatments, lattice millwork, the customer line screen, and a kitchen heat recovery unit. The losers at section 1250 included kitchen hand sinks, restroom accessories, vanity cabinets and counters, the serving line concrete curb, insulated cooler and freezer floors, the garbage room, and kitchen wall and floor tiles.
On electrical, the Eleventh Circuit made three holdings. First, taxpayers can claim the credit on a percentage basis. Second, the right method focuses on the ultimate use of the electricity the system distributes. Third, that method fits the purpose of the investment credit. In doing so it adopted the reasoning of Illinois Cereal and rejected the reasoning of A.C. Monk.
The IRS then issued AOD 1991-19, acquiescing in the functional allocation approach. The government told its own people the issue was no longer worth litigating.
How it shows up in a study
Morrison is core restaurant authority in Appendix A. It backs classification calls on kitchen process equipment, kitchen-dedicated electrical and water piping, swinging service doors, decor packages, and customer line screens.
It is also one of the two appellate anchors, with Illinois Cereal, for allocating a building's electrical distribution between equipment loads and building loads. When a study allocates a panel or feeder by load, Morrison is part of the citation chain.
The item-by-item split in this case also disciplines our work. We claim the kitchen heat recovery unit, not the hand sink. The case tells us which side of the line each kind of item falls on.
What it does not mean
Morrison does not say everything in a restaurant is personal property. The taxpayer lost on plenty: restroom accessories, vanity cabinets, tile finishes, insulated floors, and the garbage room all stayed real property.
It also does not extend percentage allocation to every building system. The IRS audit guide cautions that the functional allocation approach applies to a building's primary and secondary electrical distribution. Stretching the method beyond its support invites a fight.
And it is an investment credit case from the 1980s record. The classification logic carries into depreciation through later cases, but each asset still has to pass the tests on its own facts.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Asset classification
- Outcome
- Mixed result
- Applies to
- Restaurant, QSR, Casual Dining
- 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.