Rev. Rul. 68-193

Revenue Ruling 65-265, C.B. 1965-2, 52, clarified.

Clarification of Revenue Ruling 65-265, C.B. 1965-2, 52, relating to the depreciation of costs paid or incurred for the grading associated with a depreciable asset has been requested.

Revenue Ruling 65-265 states, in part, that excavating, grading and removal costs directly associated with the construction of buildings and the paved roadways are not `inextricably associated with the land' itself, and that there costs, since they have a direct association with such construction, are part of the costs of construction of the buildings and the paved roadways.

Revenue Ruling 65-265 related to a situation in which roadways were constructed between buildings for the purpose of providing for movement of extremely heavy materials between buildings. The combined factors of different building elevations, distance between buildings, weight of material moved and limitations of fork-lift truck horsepower, required that the roadways between buildings could not exceed a certain specified gradient. Under these special circumstances, the useful life of the roadway grading was limited to the useful life of the buildings. As these facts indicate the construction or reconstruction of buildings would require construction or reconstruction of roadway grading . (Emphasis supplied.) The grading would no longer be useful if the buildings were retired, abandoned, or reconstructed, and if new buildings were constructed or the old buildings reconstructed, it would be necessary that the roadways be regraded.

Accordingly, the costs paid or incurred for the grading are depreciable since the grading would be retired, abandoned, or replaced contemporaneously with the depreciable asset (the buildings) with which it is directly associated.

Revenue Ruling 65-265 is clarified.