United States

IRS breaks with Stine court on when a building is placed in service


The IRS announced in Internal Revenue Bulletin 2017-15 that it will not acquiesce to the holding in Stine, LLC v. United States, 115 AFTR 2d 2015-637 (DC LA 1/27/2015). Specifically, the IRS objected to the court’s holding that a building intended as a retail store is placed in service for depreciation purposes when substantially completed for retail, even if not actually open for business.

In Stine, the United States District Court for the Western District of Louisiana considered whether a building that was substantially completed but not yet open for business could be considered ’placed in service’ for the purposes of beginning depreciation. The building in question was located in a Gulf Opportunity Zone, an area designated for special tax treatment due to impact by hurricanes Katrina and Rita. Under section 1400N(d)(1)(A), the building would qualify for 50 percent bonus depreciation, but only if the building was deemed to be placed in service prior to Dec. 31, 2008. Though substantially completed with a certificate of occupancy, the store was not yet open to the public.

The IRS argued that the store, if not open for business, could not be placed in service for the purpose of beginning depreciation. The court refused to accept the use of the opening date to the public as a bright-line rule, acknowledging that in some cases commercial buildings are actually used at a point before they are open to the public. The court further found that case law showed instances when a building was technically open for business and functioning, but not placed into service for the purpose of depreciation until some refurbishments had been completed.

The Stine court concluded by stating its rule: “The building is placed in service when it is substantially complete meaning in a condition of readiness and availability to perform the function for which it was built–in this instance to house and secure racks, shelving and merchandise.”


The IRS’s position appears to be that a building cannot be placed in service until it is open for business. Taxpayers should assume that the ‘open for business’ standard will likely guide the IRS’s analysis. Therefore, taxpayers should be cautious about relying on the reasoning in Stine and should expect the IRS to challenge those positions. Because the placed in service date can significantly influence such determinations as the proper year to claim bonus depreciation, taxpayers should consult their tax advisors when making such decisions.


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