Sec. 179 deduction decision was taxpayer favorable.

• Author: Godfrey, Howard

Robert D. Shirley, TC Memo 2004-188, decided whether a Sec. 179 deduction was available for a motor home bought for a rental fleet. The deduction is allowable if the motor home is "used primarily as a means of transportation," but not if it is "used predominantly to furnish lodging." Thus, the case presents an imponderable question: "When a vehicle can be simultaneously used for both lodging and transportation, how can one tell which use is primary?"

Motor Home Rental Business

Robert Shirley owned Motor Home Rentals, a business that rented and sold motor homes. In 1997, the retail fleet contained 27 motor homes, including a new Gulfstream Motor Home purchased for $48,000 in August. The usual terms for motor home rentals are much like those for car rentals: a daily or weekly fee, a daily mileage allowance of 100 miles and a mileage charge of $0.25 for each additional mile. During the year, the business rented motor homes to many customers, for between one and 90 days, totaling 322 transactions. Most customers drove fewer than 100 miles per day.

Predominant Use

While the IRS argued that motor homes are property used predominantly for lodging, the taxpayer contended that they are used primarily for transportation. The taxpayer further argued that even if a motor home is used predominantly for lodging, it qualifies for an exception, because the lodging is used predominantly by transients (i.e., short-term renters).

Preliminary Question

Solving this puzzle involves determining whether the focus is on the motor home or the motor home business as a whole. The court followed Van Susteren, TC Memo 1978-310, and focused on the use of the fleet, not the specific motor home.

Law

Sec. 179(d) excludes property described in Sec. 50(b) from expensing. Sec. 50(b)(2) identifies property used predominantly for lodging, but excludes property used by a hotel or motel when the predominant portion of the accommodations is used by transients. The Omnibus Budget Reconciliation Act of 1990 essentially reenacted old Sec. 48(a)(3) as new Sec. 50(b)(2). There are no regulations under Sec. 50(b)(2), but the regulations under old Sec. 48(a)(3) have remained unchanged since their issuance. The Tax Court examined these regulations for guidance.

Regulatory Guidance

Regs. Sec. 1.48-1(h)(1)(i) provided that eligible property did not include property used predominantly to furnish lodging. The term "lodging facility" included an apartment, hotel, motel, dormitory or any other...