A.O.D. 2017-02 (Stine Nonacquiescence)

Where this comes from

In Stine, LLC v. United States, the Western District of Louisiana ruled that a building could be placed in service before it opened for business, as long as construction was substantially complete. That was a favorable result for the taxpayer and useful to anyone trying to lock in a year-end placed-in-service date.

On April 13, 2017, the IRS issued A.O.D. 2017-02. It formally rejected the Stine standard. The IRS took the position that a building is placed in service only when it is ready and available for a specifically assigned function, not merely when construction is finished.

What it means for your study

The placed-in-service date is one of the most important facts in a cost segregation study. Bonus depreciation rates changed year by year under the TCJA and earlier bonus periods. A single day can shift a property from one rate to another or from one tax year to another.

After A.O.D. 2017-02, the IRS has made clear it will challenge any placed-in-service date based on substantial completion alone. If you used a year-end date before the building opened, the IRS can argue the property was not yet placed in service and deny the bonus deduction for that year.

The safe approach is to document that the property was genuinely ready for its intended function before claiming a year-end date. That means a certificate of occupancy, a first tenant move-in, or the first use for the intended activity.

What it does not mean

This nonacquiescence does not change the law. The IRS cannot bind courts outside the Western District of Louisiana, and Stine is still good law in that district.

It also does not mean that every pre-opening placed-in-service claim will lose. The IRS's position sets the audit risk, but the outcome depends on the specific facts and what you can document. What it does mean is that you should not rely on Stine as a planning tool outside its home jurisdiction without understanding the fight you are entering.