New Gaming Systems, Inc. - Page 11

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          any method of depreciation not expressed in a term of years”.               
          Sec. 168(f)(1)(B).  Petitioner reported on its tax returns that             
          it used a straight-line depreciation method over 2 years.                   
          Petitioner deducted 50 percent of the depreciation basis in the             
          year that the equipment was placed in service,5 and 50 percent in           
          the next year.  Respondent contends that by choosing a method of            
          depreciation measured by a term of years, petitioner failed the             
          requirement of section 168(f)(1)(B).                                        
               Despite what its tax returns show, petitioner argues that it           
          did not use a depreciation method defined by a “term of years”.             
          Petitioner does not deny that it used a 2-year straight-line                
          depreciation method.  Petitioner argues that “Although                      
          petitioner’s Form 4562 depreciates the gaming equipment as 2-year           
          straight-line depreciation, the factors relied upon by petitioner           
          in determining that useful life were other factors that had                 
          nothing to do with the wear and tear on the machines”.                      
          Petitioner further argues that it relied on the income forecast             
          method as well as a combination of other methods to determine the           
          depreciation deduction.  Petitioner noted that, on October 1,               
          1998, it provided a schedule to the Internal Revenue Service                
          Appeals officer that tracked the income of its machines and that            



               5  Petitioner used a half-year convention on its 1995 tax              
          return for the equipment placed in service after the midpoint of            
          that year.                                                                  





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