Samis v. Commissioner

Where this comes from

A partnership acquired a cogeneration plant in 1972 to serve an apartment complex. The plant generated power and supplied space conditioning and domestic hot water to the apartment buildings. The partnership did not own the apartment complex itself, just the plant.

The partners claimed the investment tax credit and a Section 179 deduction on the plant, treating it as tangible personal property and business equipment. The IRS disagreed. The case went to the U.S. Tax Court in 1981.

What the court decided

The Tax Court ruled for the IRS. The cogeneration plant was a structural component of the apartment buildings.

The court looked at what the plant was for. It supplied the buildings' HVAC, their cooling, and their hot water. Every function it performed kept the buildings operational as residences. The partnership called it an independent energy business. The court saw a purpose-built system tied to the buildings' basic mechanical needs.

The physical separation did not help. The plant sat outside the buildings, but it existed to serve them. The analysis was about function, not proximity. A system built to keep a building working is part of that building, wherever it sits.

This case is consistent with the IRS's position in the HCA Action on Decision and is cited in McManus as supporting authority.

How it shows up in a study

Samis is cited when a cost segregation study encounters central energy plants, district heating or cooling systems, or other off-building utility infrastructure. The question this case answers is: does location outside the walls of the building change the classification?

The answer is no. A study that respects Samis does not move building-serving mechanical systems to personal property simply because they are in a utility structure, a boiler room, or a separate building on the property.

What it does not mean

Samis does not say that all energy equipment is structural. Westroads (1978) shows that dedicated power generating equipment can qualify as personal property. The distinction is whether the system serves the building's basic HVAC and hot-water functions, as in Samis, or whether it generates electrical power as equipment, as in Westroads.

Process-dedicated systems in industrial or manufacturing contexts may also be outside Samis's reach if they serve a specific production function rather than general building conditioning. Each system needs its own analysis.