Husband and wife grape-growers in Geyserville, Calif., got some mixed news last week, after the U.S. Tax Court took a closer look at how they could depreciate improvements made to their vineyard.The court found that although Leo and Evelyn Trendadue properly classified wine grape trellises on their land as farm machinery or equipment, because the irrigation systems and well the couple built on their property have a longer class life (20 years, as opposed to 10 years) those enhancements should be classified -- and depreciated for -- as permanent land improvements.

The couple operates their business, Trentadue Winery and Vineyards, as a sole proprietorship and the Internal Revenue Service claimed income tax deficiencies for the business’s 1999 and 2000 tax years, in the amounts of $12,339 and $5,473, respectively, due to the depreciation differences.

The court’s opinion -- which also includes an extensive treatise on the art of trellising and the installation of drip irrigation systems -- declares early on that the question of whether property is a permanent improvement to land has long been a subject of tax controversy.

In the case of the Trentadue’s drip irrigation systems, the court found that the improvement falls somewhere between permanent buildings and farm machinery, such as tractors, and in some ways are intended to have permanence.

“Again, the question of permanent attachment to the real property is the primary focus of the factors and asset depreciation classes, and the drip irrigation systems is more akin to a permanent improvement,” the court wrote. “The placement of a substantial portion of the pipe or tubing in the ground and the difficulty of removing the system are the primary factors that render the irrigation systems we consider here to be permanent land improvements.”

While the couple noted that their local taxing authority in Sonoma County treats the drip irrigation systems as property used in vineyard development and not as land improvement -- a point that the Trentadue’s CPA, who specializes in wine industry accounting and taxation, also believed to be correct -- the Tax Court said that point had no bearing in a federal court.

The full opinion is available at

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