Deseret Management Corp. v. United States

Where this comes from

Deseret Management ran radio broadcasting stations through Bonneville International. Between 1988 and 2000, it made improvements to broadcasting facilities and claimed that many building components were equipment, not structure, and deserved faster depreciation.

The Court of Federal Claims applied the standard framework from Hospital Corporation of America and the Whiteco factors. It looked at each category of building components and decided whether they functioned more like equipment or more like the building itself.

What it decided

The court ruled against Deseret on most items. Flooring, ceiling systems, general heating and cooling, and general electrical distribution all stayed on the 39-year structural schedule. These systems served the building and its occupants, not any specific piece of equipment.

But one category crossed the line. Some of the air-conditioning equipment existed for one reason only: to keep the broadcasting transmitters and related hardware from overheating. That equipment had nothing to do with keeping people comfortable. Under the sole-justification test, equipment that exists solely to serve another piece of equipment qualifies as Section 1245 personal property. The court sustained the faster write-off for that specific HVAC.

The case also addressed a Section 1031 goodwill-allocation issue separate from depreciation.

How it shows up in a study

Deseret is a useful case in two directions. It confirms that general building systems stay structural, so studies that claim them without strong sole-justification support are risky. But it also confirms that dedicated equipment-serving systems break out of the structural category when the facts support it.

If your property has equipment-specific cooling or power systems, such as dedicated cooling for a data center, a server room, or heavy manufacturing machinery, Deseret supports treating those systems as Section 1245. The key is showing that the system exists only to serve the equipment, not the people in the building.

What it does not mean

A general HVAC system does not qualify just because a building has specialized equipment in it. The sole-justification test requires showing that the system would not exist at all if not for the equipment it serves. Comfort conditioning that also happens to cool a server room is different from a system installed only for the server room.

Documentation matters. The study should show the purpose, capacity, and design of any system claimed under the sole-justification test. Engineering support, HVAC design drawings, and contractor records are the evidence that makes this classification stick.