Write a one-two page summary of each document. Assume this is for your supervisor, advising your Revenue Procedure 88-22,
Revenue Procedure 88-22, 1988-1 CB 785, January 01, 1988.
Clarifying and modifying: Rev. Proc. 87-56, Rev. Rul. 87-56
[ Code Sec. 168 ]
Accelerated cost recovery: Recovery classes: Class lives: Recovery periods.–
Certain asset classes and recovery periods relating to the Modified Accelerated Cost Recovery
System are set forth. Rev. Proc. 87-56 clarified and modified.
SECTION 1. PURPOSE
This revenue procedure modifies Rev. Proc. 87-56, 1987-42 I.R.B. 4, by providing: a) correct
recovery periods for asset classes 48.12 and 49.4, b) new asset class designations or descriptions
for horses in asset classes 01.221 through 01.225, and c) corrected text for asset classes 22.3,
30.1, 36.0, 37.11, and 49.223. This revenue procedure also clarifies Rev. Proc. 87-56 by making
it clear that: a) nonresidential real property that is contained in any of the asset classes set out in
section 5.02 of Rev. Proc. 87-56 has an applicable recovery period set out for the asset class, and
b) the assets described in asset class 36.1 include any semi-conductor manufacturing equipment.
SEC. 2. BACKGROUND
Section 168(e)(2)(B) of the Internal Revenue Code defines nonresidential real property as section
1250 property that is not residential rental property or property with a class life of less than 27.5
years. For purposes of the general depreciation system, section 168(c) provides that the
applicable recovery period for nonresidential real property is 31.5 years. For purposes of the
alternative depreciation system, section 168(g)(2)(C) provides that the applicable recovery
period for nonresidential real property is 40 years. See Rev. Proc. 87-57, 1987-42 I.R.B. 17, 20.
SEC. 3. CLARIFICATION AND MODIFICATION OF REV. PROC. 87-56
.01 Section 5.02 of Rev. Proc. 87-56 sets out the applicable recovery periods for nonresidential
real property, and section 5.01 states that those recovery periods are not contained in the tables
that follow. Sections 5.01 and .02, however, fail to state that the recovery periods for
nonresidential real property apply in all events because those recovery periods are separately
prescribed by statute.
Section 5.02 of Rev. Proc. 87-56 is clarified by adding the following paragraph at the end
thereof:
Under section 168(e)(2)(B)(ii) of the Code, “non-residential real property” does not include any
property described in an asset class with a class life of less than 27.5 years. Even if
nonresidential real property is described in an asset class with a class life of 27.5 years or more,
the applicable recovery period for that property is 31.5 years for purposes of the general
depreciation system and 40 years for purposes of the alternative depreciation system, regardless
of the applicable recovery periods set out for the asset class in the tables below.
.02 Asset classes 01.22, 01.221, and 01.222 and their related text in section 5 of Rev. Proc. 8756 are removed and replaced with the asset classes, class lives, recovery periods and associated
footnotes set out in Table 1.
Recovery Periods (in years)
Asset Description of assets included
class
Class
Life (in
years)
General
Depreciation
System
Alternative
Depreciation
System
01.221 Any breeding or work horse that is 12 years
10
7
10
old or less at the time it is placed in service **
01.222 Any breeding or work horse that is more than
10
3
10
12 years old at the time it is placed in service **
*
01.223 Any race horse that is more than 2 years old
3
12
at the time it is placed in service **
*
01.224 Any horse that is more than 12 years old at
3
12
the time it is placed in service and that is
neither a race horse nor a horse described in
class 01.222 **
*
01.225 Any horse not described in classes 01.221,
7
12
01.222, 01.223, or 01.224
*
Property described in asset classes 01.223, 01.224, and 01.225 are assigned recovery periods under
either section 168(e)(3)(A) or section 168(g)(2)(C) but have no class lives.
**
A horse is more than 2 (or 12) years old after the day that is 24 (or 144) months after its actual birthdate
.03 Asset class 36.1 is clarified to read in its entirety, “Any Semiconductor Manufacturing
Equipment.” The class life and recovery periods are unaffected.
.04 For purposes of the general depreciation system, the recovery period for asset class 48.12 is
10 years rather than 15 years.
.05 For purposes of the alternative depreciation system, the recovery period for asset class 49.4 is
28 years rather than 20 years.
.06 Asset class 22.3, “Manufacture of Carpets and Dyeing, Finishing, and Packaging of Textile
Products and Manufacture of Medical and Dental Supplies,” is corrected to read as follows:
Includes assets used in the production of carpets, rugs, mats, woven carpet backing, chenille, and
other tufted products, and assets used in the joining together of backing with carpet yarn or
fabric. Includes assets used in washing, scouring, bleaching, dyeing, printing, drying, and similar
finishing processes applied to textile fabrics, yarns, threads, and other textile goods. Includes
assets used in the production and packaging of textile products, other than apparel, by creasing,
forming, trimming, cutting, and sewing, such as the preparation of carpet and fabric samples, or
similar joining together processes (other than the production of scrim reinforced paper products
and laminated paper products) such as the sewing and folding of hosiery and panty hose, and the
creasing, folding, trimming, and cutting of fabrics to produce nonwoven products, such as
disposable diapers and sanitary products. Also includes assets used in the production of medical
and dental supplies other than drugs and medicines. Assets used in the manufacture of nonwoven
carpet backing, and hard surface floor covering such as tile, rubber, and cork, are elsewhere
classified.
.07 Asset class 30.1, “Manufacture of Rubber Products,” is corrected to read as follows:
Includes assets used for the production of products from natural, synthetic, or reclaimed rubber,
gutta percha, balata, or gutta siak, such as tires, tubes, rubber footwear, mechanical rubber goods,
heels and soles, flooring, and rubber sundries; and in the recapping, retreading, and rebuilding of
tires.
.08 Asset class 36.0, “Manufacture of Electronic Components, Products, and Systems,” is
corrected to read as follows:
Includes assets used in the manufacture of electronic communication, computation,
instrumentation and control system, including airborne applications; also includes assets used in
the manufacture of electronic products such as frequency and amplitude modulated transmitters
and receivers, electronic switching stations, television cameras, video recorders, record players
and tape recorders, computers and computer peripheral machines, and electronic instruments,
watches, and clocks; also includes assets used in the manufacture of components, provided their
primary use is in products and systems defined above such as electron tubes, capacitors, coils,
resistors, printed circuit substrates, switches, harness cables, lasers, fiber optic devices, and
magnetic media devices. Specifically excludes assets used to manufacture electronic products
and components, photocopiers, typewriters, postage meters and other electromechanical and
mechanical business machines and instruments that are elsewhere classified. Does not include
semiconductor manufacturing equipment included in class 36.1.
.09 Asset class 37.11, “Manufacture of Motor Vehicles,” is corrected to read as follows:
Includes assets used in the manufacture and assembly of finished automobiles, trucks, trailers,
motor homes, and buses. Does not include assets used in mining, printing and publishing,
production of primary metals, electricity, or steam, or the manufacture of glass, industrial
chemicals, batteries, or rubber products, which are classified elsewhere. Includes assets used in
manufacturing activities elsewhere classified other than those excluded above, where such
activities are incidental to and an integral part of the manufacture and assembly of finished motor
vehicles such as the manufacture of parts and subassemblies of fabricated metal products,
electrical equipment, textiles, plastics, leather, and foundry and forging operations. Does not
include any assets not classified in manufacturing activity classes, e.g., does not include any
assets classified in asset guideline classes 00.11 through 00.4. Activities will be considered
incidental to the manufacture and assembly of finished motor vehicles only if 75 percent or more
of the value of the products produced under one roof are used for the manufacture and assembly
of finished motor vehicles. Parts that are produced as a normal replacement stock complement in
connection with the manufacture and assembly of finished motor vehicles are considered used
for the manufacture and assembly of finished motor vehicles. Does not include assets used in the
manufacture of component parts if these assets are used by taxpayers not engaged in the
assembly of finished motor vehicles.
.10 Asset class 49.223, “Substitute Natural Gas-Coal Gasification,” is corrected to read as
follows:
Includes assets used in the manufacture and production of pipeline quality gas from coal using
the basic Lurgi process with advanced methanation. Includes all process plant equipment and
structures used in this coal gasification process and all utility assets such as cooling systems,
water supply and treatment facilities, and assets used in the production and distribution of
electricity and steam for use by the taxpayer in a gasification plant and attendant coal mining site
processes but not for assets used in the production and distribution of electricity and steam for
sale to others. Also includes all other related land improvements. Does not include assets used in
the direct mining and treatment of coal prior to the gasification process itself.
SEC. 4. EFFECT ON OTHER REVENUE PROCEDURES
Rev. Proc. 87-56 is clarified and modified. When Rev. Proc. 87-56 is republished in
the Cumulative Bulletin, it will reflect the changes made by this revenue procedure
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