McManus v. United States

Where this comes from

Jack McManus purchased a ten-unit airplane hangar for $165,000. He claimed the investment tax credit and tried to depreciate the hangar over five years, treating it as personal property.

The items he claimed covered the whole structure: the hangar building itself, the hangar doors, glass and door partitions, toilet partitions, false ceilings, and lighting. The IRS denied the credit and the accelerated depreciation on everything. The case went to the U.S. District Court in Wisconsin, then to the 7th Circuit.

What the courts decided

Both courts ruled for the IRS. A hangar is a building. Its components, doors, partitions, ceilings, and lighting, are structural components under Section 1250. Slow depreciation. No investment tax credit.

The courts applied the standard framework. Buildings and their structural components are on the building schedule regardless of what they house. A hangar that stores and shelters aircraft is no different from an office building that shelters workers. The fact that the taxpayer tried to characterize the interior components as separate items did not change the analysis. Each item served the building as a shelter, not a specific piece of business equipment.

Note: some summaries of this case list the items as Section 1245. That reflects what was claimed. The courts held all of them as Section 1250.

How it shows up in a study

McManus appears in cost segregation reports to mark the boundary between a building and equipment. When a study reclassifies components, it needs to explain why those items are different from the standard parts the court held structural here.

The practical lesson is about function. Doors that let you move aircraft in and out are structural. They serve the building. Specialized equipment that serves a business process has a stronger argument. A cost segregation study built on function, documented for each item, stays on the right side of this line.

What it does not mean

McManus does not say aircraft hangars have no personal property. Specialized equipment, tools, or process machinery inside the hangar may qualify. The case is about the building shell and its standard components, not about equipment that happens to be in the building.

The case also applies to any functional building that serves primarily as shelter, not just hangars. The same logic runs through warehouses, offices, and retail stores. Standard components that make the space usable are structural. Items that serve a specific business process need more support.