El Charro TV Rental, Inc., Diana L. Peters, Tax Matters Person - Page 6

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          whether, as a matter of law, the income forecast method could be            
          used in connection with consumer durables leased under rent-to-             
          own contracts.                                                              
               In El Charro I, respondent had determined that the income              
          forecast method could not be used with the particular assets in             
          question.3   In ABC Rentals of San Antonio, Inc. v. Commissioner,           
          supra, the Court saw the question to be addressed as:  “whether             
          the consumer durables leased under rent-to-own contracts are                
          properties properly depreciable under the income forecast                   
          method.”  Focusing its attention on section 168(f)(1),4 the Court           
               that petitioners have failed to demonstrate that the                   
               consumer durables leased in their rent-to-own business                 
               constitute property properly depreciated under the                     
               income forecast method of depreciation.  It is clear                   
               that the consumer durables in this case are not                        
               property similar in character to the assets which have                 
               been allowed to use the income forecast method of                      
          The Court’s underlying rationale for its holding included the               

          3 In this case, the parties presented three issues,                         
          including the issue decided in El Charro I.  The other two issues           
          involved whether El Charro made a valid election to use the                 
          income forecast method under sec. 168(f)(1) and whether use of              
          the income forecast method clearly reflects its income.  The                
          question decided in El Charro I, however, preempts and obviates             
          any need to consider the “other two issues.”                                
          4 Section references are to the Internal Revenue Code in                    
          effect for the period under consideration.                                  

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