Press Room: Tax Release

August 01, 2011

Potential Tax Savings Opportunity for Retail Facilities Selling Petroleum Products

IRS rules that the building at a facility providing full-service leasing and maintenance programs is class 57.1 property depreciable over 15 years.  ILM 201123001. 

IRS focused on whether the facilities were used primarily for petroleum marketing purposes during the year the facilities were placed in service, and concluded that they were, based on the square footage of space devoted to the sale of petroleum products during the year.  In this case, 84% of the facility on a square footage basis was associated with petroleum marketing.  This ruling is notable in that it shows IRS’ agreement that asset class 57.1, and the shorter 15 year depreciable life permitted for service station buildings used in the trade or business of petroleum marketing, may apply outside the typical gas station context to a facility providing full service leasing and maintenance programs.

If a taxpayer has been depreciating a special purpose building that qualifies for asset class 57.1 over 39 years rather than the 15 years allowed, the taxpayer may change its depreciation method (generally under Rev. Proc. 2011-14) to the more favorable depreciation method by filing Form 3115 with IRS National Office.  The favorable catch up adjustment would be taken into account in the year of change.

WTAS can assist with such filings.  In addition, WTAS can assist with identifying other assets at these facilities that may qualify for favorable depreciation methods.