Taxing Definitions

Depends on Your Definition

Thanks for sharing!
Picture of stacked booksImage source: wpclipart.com

Some people define a boat as a watercraft, and others as a hole in the water into which you throw money.

In T.C. Memo. 2012-289 (Blakeney), the $4 million yacht in question qualifies for the second definition, but another defining word determines whether the taxpayer will be liable for a $632,846 deficiency.

The question is whether the yacht is “qualified Gulf Opportunity Zone property” under section 1400N(d)(2) of the Internal Revenue Code. And the answer to that depends on the definition of the word “use.”

The Gulf Opportunity Zone was created by congress as an incentive to entice businesses to re-build in the wake of Hurricane Katrina. “Qualified Gulf Opportunity Zone property” is eligible for special tax breaks, including accelerated depreciation.

Under the statute, one of the requirements to meet the definition of qualified property is that the assets have to be “used” in the area defined as the Gulf Opportunity Zone.

The taxpayers say that for property to be “used” by a taxpayer, it must first be in a condition to serve its intended purpose. Because the yacht was under almost constant repair and couldn’t travel more than a few miles offshore, it was not “used” until it arrived in the Gulf Opportunity Zone and could be “used” as intended, as a charter boat traveling 20-40 miles offshore.

The IRS says the yacht was “used” every day after it was purchased, and therefore all the use occurred outside the Gulf Opportunity Zone.

Since words in a statute must be interpreted according to their everyday, ordinary meaning, the tax court got out the dictionary [Merriam Webster’s Collegiate Dictionary 1301 (10th ed. 1996)], and determined that “use”, when used as a verb, as it is in section 1400N(d)(2)(A)(ii), means, “to put into action or service; avail oneself of.”

The result: After the purchase, the yacht was used part of the time in the Gulf Opportunity Zone, and partly outside the Zone. Unfortunately for the taxpayer, the time spent in the Zone was not enough to qualify for the bonus depreciation tax break.

Taxing Lesson: Whether you use it, abuse it, or misuse it, language is important.

***

Other posts you might enjoy

Definitions — Written in stone Image source: ©creativecommonsimages Dreamstime Stock Photos   If nothing is written in stone, then something must be written in stone, and that something is nothing. The stone referenced in a recent revenue procedure (revenue procedure 2017-60) was the aggregate used in residential f...
Definitions — Taxing business Image source: ©publicdomainphotos, Dreamstime Stock Photos   In September, just in time to celebrate the upcoming fiscal new year, the Joint Committee on Taxation released a report on the present US federal income tax law and data related to the taxation of business income. In addition t...
Definitions — Curtailing the number Image source: openclipart.org   Voluntary truncation hardly sounds like an enjoyable pastime. But cutting off part of taxpayer identification numbers may be a way to reduce identity theft. Back in 1936, when the Social Security Board created the nine-digit social security number to id...
Definitions — Not so strictly confidential Image source: Public domain via Wikimedia Commons   You've probably heard the old joke about life's two rules. The first one is to never give out all the information. That's a rule the IRS follows and most of the time you're probably happy they do. But for identity theft victims, the ...
Tagged , , ,