Q-1:

Subject: Vineyards and Section 179 depreciation

Hello —
According to your website Vineyards are eligible for section 179 expense election.

However, the IRS is taking a opposite position. Can you please provide me with your reference.

THANK YOU.

A-1:

That list of qualifying assets was from the QuickFinder Depreciation Handbook. I just checked the online version of that handbook and it is still included there.

I also just checked IRS’s Publication 946 and don’t see any mention of vineyards not being eligible. Where exactly did you see that IRS doesn’t allow it?

Kerry Kerstetter

Q-2:

Kerry — email me with your fax phone number and I will fax you the IRS article. It is from a July 2006 Farmer publication. And, there is a very recent court case that reinforces that Vines are considered land improvements and NOT eligible for 179. I am a CPA in the Sonoma Wine Country, and this is a HUGE item in my practice…

A-2:

I would like to see a copy of that article.

I’m curious to see whether it cites an actual IRS regulation or is just someone’s opinion as to the applicability of Section 179. I haven’t actually prepared any tax returns for any vineyards; so I can’t say that I have seen it actually be accepted by IRS. Since relocating from the Bay Area, most of our Schedule F clients are involved in beef and poultry production.

However, Vineyards have been listed in the QuickFinder books for several years as qualifying for Section 179 and my experience has been very good with the accuracy of the QuickFinder books for the 20+ years I have been using them. In fact, I have frequently used copies of pages from the QuickFinders books when defending positions we have taken in cases under IRS audit and Appeals and they have been accepted as valid every time.

Thanks for sharing that article with me.

Kerry Kerstetter

Q-3:

Kerry —

I just faxed you the IRS article on farmers about Code Section 179.

Below is a link to the recent court case, where on page 26 this position is again referenced.

I am 100% confused….as I believed that Section 179 was re-written and the definition of Section 179 property was the old Section 38 (ITC definition).

I am not a tax attorney, and I am very concerned about this issue.

A-3:

Thanks for faxing that clip from the IRS website and sending the link to that Tax Court case.

I do find it quite interesting that they are relying on such an old Revenue Ruling, from 1967. It has always been my understanding as well that Section 179 assets are the same kinds that would have qualified for the Investment Tax Credit under Section 38. This had most often hinged on the items being movable rather than affixed permanently to real property.

Reading the Revenue Ruling, I noted that it actually only refers to trees and not to grape vines. Since mature trees, with their larger and deeper roots, are less movable than are grape vines, it would be much more difficult to apply Section 179 to them.

The Trentadue court case you sent seems to be addressing established vines that are acquired as part of an overall property purchase. Claiming that 100 year old vines are movable does become more difficult than to apply that distinction to new vines that are being planted for the first time.

As I said before, I haven’t really had any need to investigate this issue this deeply before. It is a very interesting question, and I hope that other readers of my blog who have some real world experience with applying Section 179 to grape vines will be willing to share any additional info and insight they have.

Kerry Kerstetter