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The underlying theory of the income forecast
method is that the useful life of certain assets of an
artistic or creative character does not depend on
physical wear or tear or the mere passage of time, but
rather the vagaries of public taste. Consequently, an
estimate is made of the total income expected to be
derived from such an asset throughout its projected
lifetime in the business. The depreciation for a given
year is then allocated based on the net income actually
earned in that year. In this case, however, the
consumer durables were leased for fixed terms, and the
income stream produced by these assets was relatively
steady, unlike that of the television films * * *.
Petitioner, in support of her position, offered the
following quote from this Court’s El Charro I opinion:
Where a taxpayer makes an election pursuant to
section 168(f)(1), the Commissioner determines that the
elected method is improper, the taxpayer bears the
burden of proof with respect to the issue that the
useful life of the property is properly measured under
the unit-of-production method or any other method not
expressed in terms of years (including the income
forecast method). In view of the even flow of income
earned by these assets, and because the useful life of
these assets is accurately measured by the passage of
time and ordinary wear and tear, we hold the income
forecast method of depreciation is not appropriate or
applicable in this case as it produces a distortion of
income and does not further the integrity of periodic
income statements by making a meaningful allocation of
the cost entailed in the use of the asset to the
periods to which it contributes. We, therefore, hold
that petitioners have not met their burden of proof
with respect to the depreciation deductions claimed
during the taxable years in issue. * * *
Focusing on the above-quoted portion of this Court’s
Memorandum Opinion, petitioner argues that factual distinctions
exist between the methodology used in El Charro I and in this
case. In that regard, petitioner points out that a different
calculation method was used for rental units in the years
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