Rev. Rul. 68-62

Advice has been requested whether the taxpayer's outdoor advertising displays are "section 1245 property" within the meaning of section 1245 of the Internal Revenue Code of 1954.

The taxpayer is in the business of erecting, maintaining, and renting, but not selling, sheet-poster and painted outdoor advertising displays, commonly known as "billboards." These displays vary in cost, size, and complexity and are located on sites that have been purchased or leased. The billboards display advertising of the products and services of the taxpayer's clients. The billboards, consisting of facings, mouldings, wood or steel structures, and sometimes lighting fixtures and worker's platforms, are rigidly assembled to withstand severe weather conditions. These assemblies are either affixed to the ground or bolted to the sides or roof of a building or other inherently permanent structure. Those billboards bolted to buildings are not related to the business conducted within the buildings.

At the end of 1964, the taxpayer sold all of his billboards. Depreciation had been claimed and allowed for 1962, 1963, and 1964 on all the billboards sold.

Section 1245(a)(3) of the Code provides in part as follows:

SECTION 1245 PROPERTY.--For purposes of this section, the term "section 1245 property" means any property (other than livestock) which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either--

(A) personal property, or

(B) other property (not including a building or its structural components) but only if such other property is tangible and has an adjusted basis in which there are reflected adjustments described in paragraph (2) for a period in which such property (or other property)--

(i) was used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, * * *.

* * * * * * *

Section 1.1245-3(b) of the Income Tax Regulations defines "personal property" as being either tangible or intangible. Tangible "personal property" which qualifies as "section 1245 property" is defined, insofar as herein pertinent, in section 1.48-1(c) of the regulations as any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures. Tangible "other property" which qualifies as "section 1245 property" has the same meaning as when used in section 1.48-1(d) of the regulations.

The billboards are inherently permanent structures by their nature and use within the meaning of section 1.48-1(c) of the regulations. They, therefore, are not tangible "personal property" within the meaning of section 1.1245-3(b) of the regulations.

The business of advertising a client's products and services is not one of the specified qualifying activities named in section 1245(a)(3) of the Code.

However, section 1250(c) of the Code provides that "the term section 1250 property means any real property (other than section 1245 property, as defined in section 1245(a)(3)) which is or has been property of a character subject to the allowance for depreciation provided in section 167." Gain from the sale or exchange of "section 1250 property" will be treated in accordance with the provisions of section 1250(a) of the Code.

The billboards are "real property" (other than "section 1245 property") which are or have been property of a character subject to the allowance for depreciation provided in section 167 of the Code.

Accordingly, the outdoor advertising displays ("billboards") of the taxpayer are not "section 1245 property" within the meaning of section 1245 of the Code. The billboards are "real property" and are "section 1250 property" within the meaning of section 1250 of the Code for purposes of treating gains from dispositions of such property.