Court case · 2003
O'Shaughnessy v. Commissioner
332 F.3d 1125 (8th Cir. 2003), rev'g in part 2002-1 USTC para 50,235 (D. Minn. 2001)
U.S. Court of Appeals, 8th Cir.
Taxpayer won
Audio summary
A short audio walkthrough of this case: what happened, what the court decided, and why it matters for your study.
The facts
A glass manufacturer reclassified property between MACRS depreciation categories without first getting IRS consent. A federal district court in Minnesota ruled for the IRS, holding that consent was required. The taxpayer appealed to the Eighth Circuit.
What the court decided
The Eighth Circuit reversed the district court. A MACRS recovery-period reallocation falls within the regulatory exemption for adjustments in useful life. It is not a Section 446(e) method change requiring IRS consent. The net result favored the taxpayer.
Why it matters for your study: A second federal appeals court sided with Brookshire Brothers on the no-consent question. For properties in the Eighth Circuit (Minnesota, Iowa, Missouri, Arkansas, Nebraska, North Dakota, South Dakota), this case is direct authority that a cost segregation reclassification does not require prior IRS consent.
Parts the case looked at
- Property reclassified between MACRS categories
Where this comes from
O'Shaughnessy arose in a glass manufacturing context. The taxpayer reclassified property between MACRS categories without filing for IRS consent under Section 446(e). A Minnesota federal district court sided with the IRS. The taxpayer appealed.
The question was the same one the Fifth Circuit had already answered in Brookshire Brothers. Does moving property from one MACRS recovery period to another require prior IRS consent? The Eighth Circuit had a chance to speak for its territory.
What it decided
The Eighth Circuit reversed the district court and held for the taxpayer on the consent question. A MACRS recovery-period reallocation fits within the regulatory exemption for adjustments in useful life. Section 446(e) does not require prior IRS consent for that kind of change.
The court affirmed some other aspects of the district court's ruling, but the net result was a win. The key point for cost segregation is the no-consent holding, which aligns directly with Brookshire Brothers.
How it shows up in a study
O'Shaughnessy and Brookshire Brothers together cover a large portion of the country on the consent question. For Eighth Circuit states, this case is your local authority. When a study on a Minnesota, Iowa, or Missouri property includes this case, it is documenting the procedural foundation for the reclassification.
The practical effect: a catch-up study on a building in the Eighth Circuit does not need a standalone Form 3115 consent filing just to make the reclassification. The study and a Form 3115 filed with the return is the right path.
What it does not mean
Like Brookshire Brothers, O'Shaughnessy is limited to its circuit. The Tenth Circuit reached the opposite conclusion in Kurzet, and the Supreme Court has not resolved the conflict. If your property is in a Tenth Circuit state, this case does not protect you.
O'Shaughnessy also says nothing about which assets belong in which MACRS category. It decides only the procedural question of consent. The underlying classification still has to be supported by the facts and the case law.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Asset classification
- Outcome
- Taxpayer won
- Applies to
- All property types
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.