Norwest Corp. & Subs. v. Commissioner

The facts

Norwest, a bank holding company, disputed depreciation lives for furniture and fixtures placed in service in 1987 through 1989. The bank said the items were described in both asset class 00.11 (office furniture, fixtures, and equipment) and activity class 57.0 (distributive trades and services) of Rev. Proc. 87-56. The two classes carry different recovery periods, so the label decided the write-off speed.

What the court decided

Rev. Proc. 87-56 sets up two kinds of classes: asset classes (00.11 through 00.4) for specific assets used in all business activities, and activity classes (01.1 through 80.0) for assets used in specific industries. The Tax Court held that an item described in both an asset class and an activity class is classified in the asset class, unless the activity class specifically includes it.

Parts the case looked at

• bank furniture and fixtures (classification framework)

Background

Norwest was a bank holding company. It disputed the depreciation lives for furniture and fixtures it placed in service in 1987 through 1989. The items seemed to fit two different spots in Rev. Proc. 87-56 at once: asset class 00.11 for office furniture, fixtures, and equipment, and activity class 57.0 for distributive trades and services.

The two classes carry different recovery periods, so the label decided the write-off speed. The Tax Court filed its opinion on August 10, 1998.

What it established

The court explained the structure of Rev. Proc. 87-56. It sets up two kinds of classes. Asset classes (00.11 through 00.4) describe specific assets that get used across all kinds of businesses. Activity classes (01.1 through 80.0) describe assets used in a specific industry.

Then it gave the tie-breaker rule: when an item is described in both an asset class and an activity class, it is classified in the asset class. The one exception is when the activity class specifically includes that item. The IRS adopted this rule in Pub 5653, which states it twice and lists Norwest in its court case index.

How it shows up in a study

Almost every study has lines that could plausibly fit two classes. A desk in a restaurant. A computer in a manufacturing plant. Norwest is the rule that resolves those: start with the asset class, and only move to the activity class if its words specifically pull the item in.

It appears in Appendix A whenever a classification call uses this precedence. It also matters on exam, because IRS examiners are told to apply the same rule in Pub 5653 chapter 6.3. Citing Norwest means the study and the examiner are working from the same playbook.

What it does not mean

Norwest is not cited as a taxpayer win or loss on furniture. The underlying case decided multiple unrelated issues, so we cite it only for the classification framework, not for an outcome.

It also does not let anyone pick whichever class gives the shorter life. The rule runs one direction: asset class first, activity class only when it specifically includes the item. If the activity class names the asset, the activity class wins even when that means a longer life.

Category

Methodology & procedure

Applies to

All property types

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.