74 T.C. 768">*768 By letter dated June 2, 1976, respondent determined deficiencies in income taxes due from petitioner ¹ for the following taxable years and amounts: 74 T.C. 768">*769

After concessions, the primary issues for our decision are (1) whether petitioner's investments in1980 U.S. Tax Ct. LEXIS 97">*100 certain truck docks qualify for the investment credit, and (2) whether petitioner's payments to a surety are deductible within the meaning of section 461(f).

1980 U.S. Tax Ct. LEXIS 97">*101 FINDINGS OF FACT

Some of the facts were stipulated and are so found. The stipulation of facts, and first, third, fourth, and fifth supplemental stipulations of facts, and the exhibits attached thereto, are incorporated herein by this reference. ²

Petitioner timely filed its accrual basis consolidated Federal income tax returns for the taxable years in issue with either the 74 T.C. 768">*770 District Director of Internal Revenue, San Francisco, Calif., or the Director, Internal Revenue Service Center, Ogden, Utah.

On April 23, 1979, petitioner filed a motion for leave to amend petition to state two additional issues: (1) That respondent is estopped to deny that petitioner's terminal facilities qualify under section 38, and (2) that petitioner is entitled to an award of attorney's fees under 42 U.S.C. sec. 1988. Also, on April 23, 1979, petitioner filed a motion to sever and for a separate hearing wherein it moved 1980 U.S. Tax Ct. LEXIS 97">*102 to sever the attorney's-fees issue pending the outcome of the main case. Petitioner's motion for leave to file an amendment to its petition was granted on April 25, 1979. On that same date, petitioner's amendment to petition was filed. Petitioner's motion to sever was granted by order of the Court dated April 30, 1979.

Petitioner is a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, with its principal place of business in San Francisco, Calif. Based on either the total amount of gross revenue or the number of route miles operated, petitioner, principally due to the operations of its subsidiary Consolidated Freightways Corp. of Delaware (CFCD), was one of the five largest motor common carriers of freight in the United States in each of the years 1966 through 1970. CFCD, the subsidiary corporation principally involved in this case, was at all times pertinent hereto a motor common carrier engaged in the transportation of general commodities freight. CFCD is a Delaware corporation. Either CFCD or its predecessors have been continuously engaged in the motor common carriage of freight since 1929.

Petitioner is, and was at all times 1980 U.S. Tax Ct. LEXIS 97">*103 relevant hereto, engaged in the common carriage of freight in 45 of the 48 contiguous States, Alaska, Canada, and the District of Columbia. Petitioner operated pursuant to licenses issued by the Interstate Commerce Commission (ICC) and appropriate State or local agencies. During the years 1966 through 1970 petitioner, principally through CFCD, operated between 159 million and 253 million route miles per year. Petitioner's gross revenues from the motor carriage of freight was $ 177,920,669 in 1966; $ 198,279,321 in 1967; $ 241,534,633 in 1968; $ 274,789,197 in 1969; and $ 261,444,920 in 1970. During each of the years 1966 through 1970, petitioner employed from 4,612 to 6,672 linehaul and local services drivers.

CFCD is principally a carrier of general commodities, as 74 T.C. 768">*771 opposed to a bulk carrier of special products. A bulk carrier of special products normally is involved in transportation of one material or one type of material requiring specially designed equipment particularly suited to the requirements of transporting that material in bulk. Examples would be oil and gasoline carriers and lumber carriers. A carrier of general commodities is involved in transportation1980 U.S. Tax Ct. LEXIS 97">*104 of a wide variety of commodities. "General commodities" consist of more than 200,000 different categories of goods which can be shipped in a standard trailer.

During the period from 1966 through 1970, inclusive, CFCD owned or operated approximately 145 trucking terminals or other facilities through which a customer could engage the services of CFCD to pick up general commodities freight for shipment. During the period from 1966 to 1970, inclusive, CFCD operated a fleet of equipment including from 7,852 to 13,371 tractors (the motorized unit of tractor-trailer combinations) and trailers.

The transportation services furnished by petitioner during all periods relevant to this case involved the pickup of general commodities freight from a customer, carriage by a motor carrier unit consisting of a tractor and one or more trailers, and delivery to the recipient designated by the customer. The operations generally involved in such a shipment are local pickups of the freight shipments from customers, transfer from the local unit at an origination terminal, shipment on a linehaul unit to the dock facilities at a destinational terminal, transfer to a local delivery unit, and delivery by 1980 U.S. Tax Ct. LEXIS 97">*105 a local delivery unit to the designated recipient.

In many instances, a single linehaul trailer will not carry the freight from origination to destination terminal facilities without an intermediate transfer or reshipment. To make such a transfer, the linehaul unit will deliver the freight to one of several terminal facilities which provide break bulk operations (also referred to as "reship" operations). In break bulk operations, freight shipments to be delivered to various destinations will be unloaded at the break bulk terminal, and shipments for each destination will be consolidated with shipments from other trailers for the same destination and loaded into other linehaul trailer units which will carry the shipments to the destination terminals or to another break bulk terminal. Occasionally, a shipment may be involved in break bulk operations at more than 74 T.C. 768">*772 one interim terminal facility. In instances in which the contents of an entire trailer constitute a shipment to one consignee, delivery will be made by the linehaul unit without the use of the dock facilities at the destination terminal. Break bulk services are provided only at certain terminal facilities, and are1980 U.S. Tax Ct. LEXIS 97">*106 separately recorded by the terminal facility. Break bulk services do not require the use of local pickup and delivery personnel or equipment. However, most of petitioner's break bulk terminals also provide inbound, outbound, and local delivery services from a portion of the same dock facility used for the break bulk operations.

Petitioner also provided local pickup and delivery services. Local units are often smaller than linehaul units to allow easier access to city streets. Local pickup and delivery drivers operate along regular routes generally organized by reference to the ZIP codes or commercial zones. The routes and sequence of deliveries, pickups, and loadings are planned in offices located at the terminal facilities. At the customer's designated point for pickup of the freight shipment, the driver will place the shipment in the trailer unit. Shipments may be picked up at the customers' docks at the same level as the trailer. In other situations, shipments are picked up from ground level and placed into the trailer. Some of the local pickup units are equipped with automatic lifts to assist the driver when it is necessary to load a shipment from ground level into the1980 U.S. Tax Ct. LEXIS 97">*107 trailer of the local pickup unit. A shipment may consist of one or more of the various "general commodity" categories. Upon completing his pickup of freight shipments, the driver returns to the origination terminal.

The origination terminal is the freight terminal at which shipments are transferred from local pickup units into linehaul units for transportation to destination terminals. At the origination terminal, the local pickup trailer unit will be removed from the tractor and taken to the dock facilities where the shipment will be removed from the trailer and moved across the dock to the appropriate linehaul trailer unit. The operations performed at the dock facilities in the local pickup of freight and movement from the local pickup unit to the linehaul unit are referred to as "outbound services" because, from the point of view of the origination terminal, the freight shipments are moving out from the point of origin.

At the destination terminal, freight shipments are removed 74 T.C. 768">*773 from the linehaul unit and moved across the dock to a local delivery trailer unit and loaded in a sequence for local delivery. The local delivery unit then delivers the freight shipment to1980 U.S. Tax Ct. LEXIS 97">*108 the recipient designated by the customer. The operations performed at the destination terminal facilities are referred to as "inbound services" because, from the point of view of the destination terminal, the freight is coming into the point of destination.

Thus, "linehaul services" consist of the long distance carrying of freight shipments. Petitioner may carry goods across the country, e.g., from Los Angeles to Boston. Linehaul services are provided in tractor and trailer units which are similar in appearance to many of the local pickup and delivery units, but which, because of original construction, usage, or capacity, are in condition to perform the more demanding linehaul services. For example, a linehaul tractor generally travels approximately 150,000 miles per year. The linehaul equipment is segregated from the local pickup and delivery equipment, and linehaul drivers are different individuals from the local pickup and delivery drivers. The linehaul drivers normally do not make continuous coast-to-coast trips. Instead, they operate on a relay system. Each driver is assigned to a particular terminal. From that terminal, the driver will drive the tractor and trailer 1980 U.S. Tax Ct. LEXIS 97">*109 unit approximately 8 to 10 hours to a relay point. At the relay point, another driver will replace the original driver. The original driver will rest for 8 hours. He will then drive another tractor and trailer unit back to the terminal to which he is assigned. The original trailer and shipments will be driven by one or more other drivers to the destination terminal or to a break bulk terminal.

During the taxable years 1966 through 1970, CFCD placed in service trucking terminal facilities or maintenance facilities or improvements to existing facilities ³ at each of the following locations: 74 T.C. 768">*774

1980 U.S. Tax Ct. LEXIS 97">*110 74 T.C. 768">*775 No part of the investments listed above is "suspension period property" as defined in section 48(h) of the Code, and all investments in projects or facilities listed above are "pretermination property" as defined in section 49(b) of the Code. All the facilities listed above are tangible property which were constructed, erected, or placed in service by petitioner after December 31, 1961, and with respect to which depreciation deductions are allowable.

1980 U.S. Tax Ct. LEXIS 97">*111 At the time placed in service, each of the freight transshipment docks and other facilities listed above had a useful life of 8 years or more for the purpose of computing the allowance for depreciation under section 167 of the Code. All the above facilities were used by petitioner at all times relevant to this proceeding as integral parts of petitioner's business of furnishing transportation services.

The dispute with respect to the correct amount of investment tax credit to which petitioner is entitled is limited to the issue of whether the following items of property at petitioner's terminal facilities constitute "section 38 property": freight transshipment 74 T.C. 768">*776 docks; mercury-vapor dock lights; overhead dock doors; terminal yard fences; mercury-vapor shop lights. The amount of investment in these items in each of the taxable years at issue is described below:

1980 U.S. Tax Ct. LEXIS 97">*112 The following 43 freight transshipment dock projects are in issue in this proceeding:

1980 U.S. Tax Ct. LEXIS 97">*113 74 T.C. 768">*777 The following terminals at issue in this proceeding are constructed without overhead dock doors, i.e., without doors which may be raised to close off a truck loading space: Santa Fe Springs, Calif.; Phoenix, Ariz.; Hayward, Calif.; Orange, Calif.; Cincinnati, Ohio; St. Louis, Mo.; and Memphis, Tenn.

The following terminals are equipped with "towveyor" conveyor systems: Santa Fe Springs, Calif.; Hayward, Calif.; Aurora, Ill.; Salt Lake City, Utah; Cincinnati, Ohio; St. Louis, Mo.; Buffalo, N.Y.; and Kansas City, Mo. "Towveyors" are motorized chains usually set in the floor and around the perimeter of the dock. The chain is accessible through a slit in the floor and is kept in continuous motion by a small motor. Towveyors are used to move freight carts around the perimeter of the dock.

The towveyor in the St. Louis, Mo., terminal is designed to operate through an overhead chain rather than by a chain set into the concrete dock platform. The towveyor installed in the Kansas City, Mo., terminal, which was installed when that 74 T.C. 768">*778 terminal's dock extension was constructed, is an overhead-drive towveyor. ⁴ Each terminal yard is enclosed by a chain link fence. The terminal1980 U.S. Tax Ct. LEXIS 97">*114 yard fences surrounding the facilities before us are used as integral parts of petitioner's business of providing transportation services.

During the years 1966 through 1970, petitioner placed into service the following 16 additions to existing docks. The location, year placed in service, number of trailer positions, and dimensions of the dock addition for each of the dock extensions at issue are set forth below:

1980 U.S. Tax Ct. LEXIS 97">*115 Construction of the raised concrete platform portion of a freight transshipment dock is fundamentally the same for all the docks in issue. A mound of engineered fill is formed in the shape of the dock and partially compacted. The edges are then cut away to provide a space for construction of the perimeter of the dock. Heavy concrete footings are poured around the entire perimeter of the dock. The footings are normally 2 feet wide and 18 inches thick and form the foundation for the retaining wall. After the footings are hardened, wooden or metal forms are constructed into which cement is poured to mould a 12-inch-thick 74 T.C. 768">*779 continuous concrete retaining wall which forms the perimeter of the dock. The perimeter dock wall is thicker at the corners and at those locations (generally every 22 feet) where metal uprights are subsequently bolted to the dock platform. Before concrete is poured into the forms, reinforcing rods are placed at 8- to 12-inch intervals both vertically and horizontally. Concrete is poured to a level of 42 to 44 inches above ground level. Reinforcing rods placed vertically in the walls extend 6 inches above the retaining wall. After the perimeter concrete1980 U.S. Tax Ct. LEXIS 97">*116 dock wall is hardened, the forms are removed and the space between the perimeter dock wall and the compacted mound is filled with engineered fill, and the mound is further compacted.

At the same time the dock is being filled, wooden forms are set in the correct positions to form any pits needed to install equipment such as a towveyor or dock scales. Before the concrete platform is poured, a continuously welded edge angle is welded to the reinforcing rods protruding from the retaining walls. The edge angle is made from two strips of from 5- to 6-inch-wide steel plate continuously welded to each other at a 90-degree angle. After welding the edge angle to the vertical reinforcing rods, additional "anchors" made from reinforcing rod shaped into a hook are welded into the inside of the angle at approximately 18-inch intervals around the entire dock perimeter. Long sections of reinforcing rod are then laid into the anchors. When the concrete for the platform is poured, the anchors are firmly embedded in the dock. Once the edge angle is complete, 6 inches of concrete are poured over a reinforcing rod and steel mesh matrix for added strength, thus forming a platform 48 to 50 inches 1980 U.S. Tax Ct. LEXIS 97">*117 above ground level.

Each of the freight transshipment docks in issue is covered by a metal roof including a canopy which extends beyond the edge of the raised concrete platform. The metal roof consists of structural steel members and sheet metal for roofing or siding. Vertical steel columns, of sufficient height (usually 12 to 14 feet) to allow a clearance between the dock platform and cover ranging from 11 to 12 feet, are bolted to the concrete platform at 22-foot intervals on the sides of the dock. Crossbeams consisting of steel I-beams extend across the vertical columns without any additional support columns in the center of the dock. Additional roof framing members consisting of 6-inch-deep steel purlins run longitudinally across the crossbeams at 5- to 6-foot 74 T.C. 768">*780 spacings. Roof sheathing, consisting of enamelled sheet metal panels, is attached to the tops of the roof-framing members. At some terminals, skylights of translucent material are inserted in place of some metal panels to provide light. Each of the intervals of 22 feet is referred to as a bay and within each bay are two 11-foot-wide trailer positions. The canopy is designed to provide a 10-foot overhang 1980 U.S. Tax Ct. LEXIS 97">*118 on all sides.

While various persons were employed by petitioner to perform services at its terminal facilities during the years before us, the employee most substantially involved in the movement of freight at the dock was the "dockman." The dockman's principal activity is to load and unload freight from one trailer to another. This activity may be performed in a variety of ways. The most common method of loading and unloading is by hand. The boxes or packages of freight are removed from a trailer and placed on a four-wheel dock cart which has been pulled inside the trailer for easy loading. Large, bulky, or heavy materials are frequently moved by using a forklift operated by a dockman or a forklift operator. The forklift may be driven directly into a trailer to remove a load. A variety of other special equipment in addition to dock carts and forklifts, such as "handtrucks" and aluminum conveyor rollers, may be used in unloading a trailer. Once a dock cart or handtruck is loaded, the dockman will move the dock cart or handtruck out of the trailer and across the dock. At a terminal with a towveyor, the dockman will move the cart directly to the towveyor track, usually a distance1980 U.S. Tax Ct. LEXIS 97">*119 of 20 feet, and attach the cart to the track. The dockman then returns to the trailer for further unloading. The loading process is the reverse of the unloading process.

Freight is sometimes "staged." The staging area is in the center of the dock. Staging is a term which describes the transitory or short-term storage of freight. Normally, there are two reasons for staging freight. First, shipments must be loaded into trailers in a proper sequence so that weight is distributed correctly and shipments to a given destination are kept together. Staging of freight facilitates this process. Secondly, freight may be staged for a short time to await arrival of the trailer on which the freight will ultimately be shipped. A dockman will therefore stage freight and remove freight from the staging area in the course of his duties. A dockman spends the predominate amount 74 T.C. 768">*781 of his time inside the trailers he is loading or unloading, rather than on the dock.

The following employees are normally never required to be present on the dock during the performance of their jobs: leadman, parts room; leadman, tire and lube; partsman; tire lube man; washer; shop clerk; transport operator; 1980 U.S. Tax Ct. LEXIS 97">*120 linehaul secretary; personnel manager; secretary; bill clerk; bill pusher; cashier interline; and payroll clerk. However, a secretary, bill clerk, or bill pusher may, in rare circumstances, go onto the dock. A shop manager, assistant shop manager, mechanic, mechanic's helper, shop foreman, leadman shop foreman, or inspector would be on the dock only in the rare circumstance of a breakdown of equipment on the dock.

Petitioner's docks and shops are equipped with high-intensity mercury-vapor lamps. These lamps are manufactured by the Holophane Lighting Co. and are designed to provide high-intensity, broad-beam illumination. The lamps are self-contained units and are installed by their being hung from a hook in the roof. The lamp is connected to a power source by inserting a standard plug into a standard power socket. Installation or removal of the mercury-vapor lamps requires no tools or equipment other than a ladder, and each lamp can be installed or removed in less than 30 seconds. At terminals placed in service after 1967, the mercury-vapor lamps serve as the only source of light during night hours, while at terminals placed in service prior to 1967, the mercury-vapor lamps1980 U.S. Tax Ct. LEXIS 97">*121 are installed in addition to standard florescent fixtures. Of the terminals placed in service during 1967, those in Cincinnati, Ohio; Orange, Calif.; and Buffalo, N.Y., were equipped with both standard florescent lights and mercury-vapor lights. Mercury-vapor lamps installed in shops are designed with a double light fixture.

Several of the terminal facilities in issue herein were later sold by petitioner to third parties. In each case, the purchaser used the facility as a motor common carrier freight transshipment terminal.

During the normal course of its operation of motor vehicles as a common carrier, petitioner's employees and equipment are involved in traffic accidents which cause damage to its vehicles and cargo carried therein, as well as personal injuries to petitioner's employees and to the property and persons of third parties. Throughout the period 1961 to the present, and for a 74 T.C. 768">*782 substantial period prior to 1961, motor common carriers were required by Federal and State statutes and regulations to provide insurance coverage or to make other satisfactory arrangements to provide for the payment of claims which may arise against the carrier from such vehicular accidents.

1980 U.S. Tax Ct. LEXIS 97">*122 In 1961, petitioners began a program of self-insurance designed to satisfy these Federal and State statutes and to provide for payment of damages caused by the operation of its motor vehicles in the common carriage of freight. In order to pursue its purpose of self-insurance, petitioner was required by the ICC and various State agencies to provide proof of financial responsibility. Petitioner provided the required proof of financial responsibility by entering into surety agreements with Seaboard Surety Co. (Seaboard) and causing bonds to be filed with the appropriate agencies.

On February 9, 1961, petitioner filed an Application for Surety Bond -- Miscellaneous Form with Seaboard. This application read in pertinent part as follows:

THE UNDERSIGNED [petitioner] HEREBY AGREES:

* * * *

3rd. To indemnify and keep indemnified the Surety and hold and save it harmless from and against any and all liability, losses, costs, damages, attorneys' and counsel fees, and disbursements, and expenses of whatever kind or nature which the Surety may sustain or incur by reason or in consequence of having executed or procured the execution of the bond or bonds hereinabove applied for and renewal(s), 1980 U.S. Tax Ct. LEXIS 97">*123 continuation(s), extension(s) or successor(s) thereof and all other bonds heretofore or hereafter executed or procured for or at the request of the undersigned, and which the Surety may sustain or incur in taking any steps it may deem necessary, in making any investigation, in defending or prosecuting any actions, suits, or other proceedings which may be brought under or in connection therewith, and recovering or in attempting to recover salvage or any unpaid bond premium, in obtaining or attempting to obtain release from liability, or in enforcing any of the covenants of this agreement; and to pay over, reimburse and make good to the Surety, its successors or assigns, all money which the Surety or its representatives shall pay, or cause to be paid or become liable to pay, by reason of the execution of the bond or bonds * * *

* * * *

5th. If for any reason the Surety shall be required or shall deem it necessary to set up a reserve in any amount to cover any contingent claim or claims, loss, costs, attorneys' fees and disbursements and/or expenses in connection with said bond or bonds by reason of default of the undersigned for any reason whatsoever, and regardless of any proceedings1980 U.S. Tax Ct. LEXIS 97">*124 contemplated or taken by the principal or pendency of any appeal, the undersigned jointly and severally 74 T.C. 768">*783 hereby covenant and agree immediately upon demand to deposit with the Surety, in current funds, an amount sufficient to cover such reserve and any increase thereof, such funds to be held by the Surety as collateral, in addition to the indemnity afforded by this instrument, with the right to use such funds or any part thereof, at any time, in payment or compromise of any judgment, claims, liability, loss, damage, attorneys' fees and disbursements or other expenses; and if the Surety is required to enforce performance of this covenant by action at law or in equity, the costs, charges and expenses, including counsel or attorneys' fees which it may thereby incur, shall be included in such action and paid by the undersigned. * * *

* * * *

11th. In the event that it becomes necessary or advisable in the judgment of the Surety to control, administer, operate or manage any or all matters connected with the performance of any obligation or obligations which are the subject of its suretyship, for the purpose of minimizing any possible loss or ultimate loss to the undersigned and1980 U.S. Tax Ct. LEXIS 97">*125 the Surety, the undersigned hereby expressly covenants and agrees that such action on the part of the Surety shall be entirely within its rights and remedies under the terms of this agreement and as Surety, and does hereby fully release and discharge the Surety, in this connection, from liability or all actions taken by it or for its omissions to act, except for deliberate and willful malfeasance.

* * * *

13th. It is understood and agreed that, as the execution of this agreement is an essential part of the consideration for the execution by the Surety of a bond or bonds, the failure to execute this instrument or, in the case the execution may be defective or invalid for any reason, such failure, defect or invalidity, shall not in any manner affect the validity of this instrument or the liability hereunder, and that this instrument shall be in full force and effect to the same extent as if such failure, defect or invalidity had not existed. This agreement, although executed subsequent to the issuance of any instrument referred to herein, has the same force and effect as though executed prior to the issuance of such instrument.

On March 1, 1961, petitioner entered into an agreement1980 U.S. Tax Ct. LEXIS 97">*126 with Seaboard entitled the "Indemnity Agreement." This agreement read in pertinent part as follows:

1. The Indemnitors will pay when due all premiums for each of such bonds and shall at all times indemnify and keep indemnified the Surety and hold and save it harmless from and against any and all liability, losses, costs, and damages, attorneys' fees and counsel fees, and disbursements, and expenses of whatever kind or nature which the surety may sustain or incur by reason or in consequence of having executed or procured the execution of such bond or bonds and any renewal, hereafter executed or procured for or at the request of the Principal, and which the Surety may sustain or incur in taking any steps it may deem necessary in making any investigations, in defending or prosecuting any actions, suits or other proceedings which may be brought under or in connection therewith, or in recovering or attempting to recover salvage or any 74 T.C. 768">*784 unpaid bond premium, in obtaining or attempting to obtain release from liability, or in enforcing any of the covenants of this agreement; to pay over, reimburse and make good to the Surety, its successors or assigns, all money which the Surety or1980 U.S. Tax Ct. LEXIS 97">*127 its representatives shall pay or cause to be paid or become liable to pay, by reason of the execution of such bond or bonds, and any renewal, continuance, extension or successor thereof, and all other bonds heretofore or hereafter executed or procured for or at the request of the Principal; and such payment to be made to the Surety as soon as it shall become liable therefore, whether the Surety shall have paid out such sum or any part thereof, or not.

* * * *

4. It is understood and agreed that as the execution of this agreement is an essential part of the consideration for the execution by the Surety of such bond or bonds, the failure to execute this instrument, or, in case the execution may be defective or invalid for any reason, such failure, defect or invalidity, shall not in any manner affect the validity of this instrument or the liability hereunder, and this instrument shall be in full force and effect to the same extent as if such failure, defect or invalidity had not existed. This agreement, although executed subsequent to the issuance of any instrument referred to herein, is of the same force and effect as though executed prior to the issuance of such instrument.

* * * 1980 U.S. Tax Ct. LEXIS 97">*128 *

6. It is expressly understood and agreed that the liability of the Indemnitors for premium payments shall be limited to the premium charged by the Surety for the period in which the Surety under its bond accepts additional liability. Upon cancellation of the bond, the liability of the Indemnitors for premiums arising after cancellation shall cease.

Also, on March 1, 1961, petitioner entered into an agreement with Seaboard entitled the "Collateral Agreement." The relevant terms of the Collateral Agreement provide:

Whereas, application has been and may hereafter be made to the Surety to execute or procure execution of a bond or bonds or policies on behalf of Principals or any of them, and

Whereas, the Surety has made it a condition precedent to executing any such bond or policy that its exposure at all times be adequately collateralized, upon the terms and conditions of the Agreement.

Now, Therefore, in consideration of the premises and of the execution of any such bond or policy and of the mutual agreements herein contained, it is agreed that:

A. Principals shall forthwith deposit or cause to be deposited with Surety, as collateral, cash or securities acceptable to Surety, or both, 1980 U.S. Tax Ct. LEXIS 97">*129 having a total current value of not less than 100 percent of the aggregate of the reserves set up by the principals on claims for which Surety is or may be responsible under such bond or bonds or policies as security (a) against any and all liability, loss, costs, damages, expenses, and attorneys' fees arising or incurred in connection with any such bond or policy heretofore or hereafter procured by the Surety at 74 T.C. 768">*785 the instance or inquest [sic] of the Principal [sic] or any of them, and (b) for the performance of every agreement made by the Principals in connection with such bond or policy (including but not limited to Principals Indemnity Agreement in favor of Surety).

Principals shall promptly after the last day of each month furnish to the Surety full information concerning claims and claim reserves, on forms provided by the Surety. If at any time the value of the collateral on deposit with Surety shall be less than 100 percent of reserves on pending claims, Principals shall deposit or cause to be deposited as much additional collateral as may be required to bring the value of the collateral to such 100 percent.

At any time and without notice or legal process, in order1980 U.S. Tax Ct. LEXIS 97">*130 to pay out of such collateral to itself or otherwise any amounts due or to become due, or in the event Principals or any of them, or any other owner of any such collateral, shall breach any of the terms of this or any other agreement relating to any of the bonds or policies aforesaid, the Surety may, but shall not be obliged to, sell any of said collateral at public or private sale to itself or others, or deposit, invest, convert, cash, exchange, renew or dispose of said collateral or the proceeds thereof in any other manner, as it may deem proper.

B. Within a reasonable time after receipt of written request of the Principals, Surety shall release such collateral as may be in excess of 100 percent of the then outstanding claim reserves.

D. Upon termination or cancellation of such bond or bonds 1980 U.S. Tax Ct. LEXIS 97">*131 or policies, all or any part of the collateral shall at the option of the Surety be held by it until its liability has been extinguished and the statutory period for filing claims thereunder has terminated.

Pursuant to the March 1, 1961, agreements between petitioner and Seaboard, Seaboard filed bonds on behalf of petitioner with the various State and Federal agencies, including the ICC, governing the areas within which petitioner operated. ⁵

Pursuant to the March 1, 1961, agreements with Seaboard, petitioner deposited the following amounts with Seaboard in each of the years 1966 through 1970: 74 T.C. 768">*786

In addition to the above deposits, petitioner paid annual premiums to Seaboard of approximately $ 50,000 to $ 60,000. As of December 31 of each of the following years, petitioner had the following1980 U.S. Tax Ct. LEXIS 97">*132 amounts on deposit with Seaboard:

The amounts petitioner transferred to Seaboard as deposits pursuant to the March 1, 1961, agreements were equal to the full amount of the increase in petitioner's estimated liability to third parties for claims by such third parties against petitioner for damages arising from traffic accidents for the year of the transfer; but in no event did petitioner's transfers, in respect of any one claim, exceed 100 percent of Seaboard's potential liability therefor under the various bonds. In turn, Seaboard's liability as surety did not exceed the limits stated in the bonds. ⁶ The timing and amount of petitioner's transfers to Seaboard were as were specified in the collateral agreement and were not subject to the discretion of petitioner. Under the various agreements for filing the surety bonds, in the event of petitioner's default, Seaboard would have used the amounts transferred to Seaboard to pay claims. Seaboard posted bonds with respect to bodily injury and property damage to third parties or their property and damage to freight1980 U.S. Tax Ct. LEXIS 97">*133 shipments carried by petitioner resulting from, e.g., vehicular accidents.

Each claim against petitioner with respect to which petitioner transferred an amount to Seaboard pursuant to the March 1, 1961, agreements was processed by the Insurance & Claims 74 T.C. 768">*787 Division of Consolidated Freightways, Inc. (claims division), in Portland, Ore.The claims division prepared a file for each such claim which contained all the correspondence, reports, agreements, and other documents pertinent to each claim (referred to hereinafter as the1980 U.S. Tax Ct. LEXIS 97">*134 claim file). On the cover of each claim file, the amount which it was estimated that petitioner would be required to pay and the amount of all payments made were entered. The amount on deposit with Seaboard at the end of each year, 1965 through 1970, was the total of the amounts of estimated liability for each claim set forth on the claim file cover at that date, up to the limits set by the various bonds involved.

In the usual case, upon the occurrence of a vehicular accident, petitioner's driver would prepare a report of the accident which would then be submitted to the terminal manager and to the claims division. The claims division would then determine the amount of petitioner's estimated liability for each claim based upon the driver's report, police reports, appraisals from adjusters, medical reports, and reports from attorneys, copies of which were placed in each claim file. The amount of estimated liability would then be entered on the cover of each claim file. As the claims were evaluated and settlements negotiated, petitioner's claims division would make payments directly to the claimants or their representatives. As payments were made, each payment would be entered1980 U.S. Tax Ct. LEXIS 97">*135 on the cover of the claim file and the amount of petitioner's remaining estimated liability (sometimes referred to as a "reserve" or "unpaid claim") would be reduced to reflect the payment. Payments of claims were made directly by the claims division. Adjustments were also made to increase or decrease the amount of petitioner's estimated liability based upon subsequent developments and additional information. Upon satisfaction of a claim in full, expiration of the statute of limitations, or other similar event which terminated petitioner's liability for a claim, the claim file would be marked "closed" and the amount of petitioner's estimated liability on that claim reduced to zero.

Petitioner's claims division regularly reviewed the reserve outstanding on each of the open claim files. The aggregate amount of the outstanding open claim reserves was compared to the balance held by Seaboard. If the total outstanding reserve amount was higher than the total amount held by Seaboard, a transfer was made to raise the amount to 100 percent of the 74 T.C. 768">*788 outstanding claim reserves. If the total reserve amount was less than petitioner's deposits with Seaboard, petitioner would request1980 U.S. Tax Ct. LEXIS 97">*136 the return of the excess. In every instance in which petitioner's insurance and claims division determined that the balance of outstanding open claim reserves was greater than the total balance of deposits, petitioner increased the deposits accordingly. Seaboard regularly audited the amount of petitioner's estimated liabilities on outstanding claims, based upon petitioner's reports or accountings, to determine if petitioner had transferred adequate deposits to Seaboard under the March 1, 1961, agreements. Petitioner's claims division was usually very accurate in estimating petitioner's liabilities.

During the years in issue, petitioner borrowed funds from the Bank of America under a revolving credit agreement. Petitioner also borrowed from other banks, referred to herein as "participating banks," pursuant to that same agreement. Petitioner had an oral understanding with the Bank of America, and thereby with each participating bank, that petitioner would maintain funds in non-interest-bearing accounts at such banks in amounts equal to a certain percentage of each bank's average loan to petitioner for some prior period of time. The amounts required to be placed in non-interest-bearing1980 U.S. Tax Ct. LEXIS 97">*137 accounts with the participating banks pursuant to the oral understanding are referred to as "compensating balance requirements."

From time to time during the years 1966 through 1970, amounts on deposit with Seaboard were transferred from one bank to another or from a bank account into an investment. On occasion, petitioner would request Seaboard to transfer amounts on deposit with Seaboard from one bank to another in order for such amounts to be available to meet petitioner's "compensating balance requirements" at various banks. In each such instance, a request for transfer was sent by petitioner to Seaboard for Seaboard's consideration and approval. If petitioner's request was approved by Seaboard, Seaboard made the transfer of the deposits. All amounts transferred to the accounts established by Seaboard were under the absolute control of Seaboard. Only Seaboard officers had authority to make withdrawals or transfers of amounts from those accounts. During the years 1966 through 1970, Seaboard approved each of petitioner's written requests and made the requested transfers of the deposits. The amounts deposited by petitioner with Seaboard, and by Seaboard 74 T.C. 768">*789 with various1980 U.S. Tax Ct. LEXIS 97">*138 banks, earned income. This income was reported by petitioner and served to reduce petitioner's collateral obligations.

The relationship between petitioner and Seaboard terminated on August 1, 1977. Subsequent to the termination of the arrangement between petitioner and Seaboard, Seaboard continued to maintain deposits made by petitioner in accounts in Seaboard's name. In February 1978, petitioner, through John C. Miller, vice president and manager of petitioner's Insurance & Claim Division, requested a release of $ 1,500,000 of the deposits held by Seaboard because the outstanding reserves on claims covered by surety bonds issued by Seaboard had been reduced by that amount. This request was refused.

Petitioner has consistently, since 1961, claimed deductions for deposits paid to Seaboard and has reported deposits returned to petitioner by Seaboard as income, with the exception of 1965 when deposits paid to Seaboard were not deducted due to inadvertence. Deductions and income from deposits paid or refunded were shown on Schedule M-1 of petitioner's returns for each of the years 1966 through 1970.

OPINION

The first issue with which we must deal is petitioner's claim that respondent1980 U.S. Tax Ct. LEXIS 97">*139 should be "estopped" to deny that petitioner's docks qualify for the investment credit. ⁷ Petitioner would, apparently, raise estoppel on the basis of (1) Rev. Rul. 68-1, 1968-1 C.B. 8, and (2) a Form 870 petitioner executed with respect to its taxable years 1961 through 1964. Separately, petitioner contends that respondent abused his discretion in not making Rev. Rul. 71-203, 1971-1 C.B. 7, purely prospective in operation.

The gravamen of petitioner's argument with respect to Rev. Rul. 68-1 is that:

respondent published Revenue Ruling 68-1 * * * in early 1968 and that during 1968 the Internal Revenue Service applied that Revenue Ruling to the facts in this case to determine that under that Revenue Ruling petitioner's docks qualified as Section1980 U.S. Tax Ct. LEXIS 97">*140 38 property. After publication of Revenue Ruling 68-1 petitioner placed in service 22 of the 43 docks in issue. Only after those docks 74 T.C. 768">*790 were constructed and after publication of Revenue Ruling 71-203 * * *, in 1971 did respondent seek to change its position and contend Revenue Ruling 68-1 did not apply to such docks and that such docks were not Section 38 property.

Further, petitioner argues that it has been greviously injured by respondent's alleged change in position because petitioner could have constructed its docks in a different manner.

Respondent argues that petitioner must fail because it has not established any of the elements of estoppel or abuse of discretion. Respondent argues that he never made a determination that Rev. Rul. 68-1 applied to petitioner's docks and that, therefore, there was no representation upon which petitioner could rely. Respondent argues that the Form 870 waiver petitioner signed was not a determination and, by its terms, cannot bind the Commissioner. Further, respondent1980 U.S. Tax Ct. LEXIS 97">*141 points out that the Form 870 covered taxable years not before the Court. Respondent also argues that Rev. Rul. 71-203 did not modify or revoke Rev. Rul. 68-1 because the two rulings dealt with completely different topics. Finally, respondent argues that petitioner has failed to show reasonable reliance and detriment.

Rev. Rul. 68-1 dealt with the qualification for the investment tax credit of certain improvements made to a trucking terminal, viz, "paved yard, concrete aprons, concrete pads, yard bumpers, yard lighting, and a fence surrounding the terminal." The ruling concluded that:

in this case the improvements consisting of a paved yard, concrete aprons, concrete pads, yard bumpers, and yard lighting made to the trucking terminal by the taxpayer, which is engaged in the business of furnishing transportation services, are "section 38 property" for investment credit purposes. However, the fence surrounding the terminal does not qualify as "section 38 property." [Rev. Rul. 68-1, 1968-1 C.B. 8, 9.]

Rev. Rul. 71-2031980 U.S. Tax Ct. LEXIS 97">*142 dealt with the qualification under section 38 of a "docking facility" identical in all operable aspects with the docks before us. That ruling concluded that the docking facility was a "building." The Form 870 mentioned by petitioner was dated October 24, 1968, and dealt with petitioner's taxable years 1961 through 1964. It would appear from petitioner's protest made on March 28, 1968, with respect to its taxable years 1962, 1963, and 1964, that the primary issue with respect to those years was the useful life of the assets involved for section 38 purposes, not their original qualification as section 38 property.

74 T.C. 768">*791 The elements of estoppel are well known. ⁸ Petitioner must fail on this claim because it cannot show a primary element of its case, i.e., "representation." We think it clear that the two revenue rulings at issue dealt with completely different questions of law and fact. See Consolidated Freightways, Inc. v. United States, docket No. 168-69, Opinion of Trial Judge ( Ct. Cl. 1979, 44 AFTR 2d 79-5230, 79-2 USTC par. 9440). This being the case, and in the absence of a relevant private letter ruling or other indication1980 U.S. Tax Ct. LEXIS 97">*143 that respondent had made any sort of binding representation to petitioner, there can be no estoppel, of either sort, and no abuse of discretion. See Automobile Club of Michigan v. Commissioner, 353 U.S. 180">353 U.S. 180, 353 U.S. 180">184 (1957); Malinowski v. Commissioner, 71 T.C. 1120">71 T.C. 1120, 71 T.C. 1120">1128-1129 (1979).

We now turn to the merits. The first substantive issue with which we must deal is the allowability of1980 U.S. Tax Ct. LEXIS 97">*144 certain claimed investment credits taken with respect to petitioner's freight transshipment docks, mercury-vapor dock and shop lights, overhead dock doors, and terminal yard fences.

The relevant law remained unchanged during the taxable years before us. Section 38 provided as follows:

SEC. 38. INVESTMENT IN CERTAIN DEPRECIABLE PROPERTY.

(a) General Rule. -- There shall be allowed, as a credit against the tax imposed by this chapter, the amount determined under subpart B of this part.

(b) Regulations. -- The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section and subpart B.

Section 48, which is part of "subpart B," provided in relevant part as follows:

SEC. 48. DEFINITIONS: SPECIAL RULES.

(a) Section 38 Property. --

(1) In General. -- Except as provided in this subsection, the term "section 38 property" means --

* * * *

Such term includes only property with respect to which depreciation (or amortization in lieu of depreciation) is allowable and having a useful life (determined as of the time such property is placed in service) of 4 years or more.