El Charro TV Rental, Inc., Diana L. Peters, Tax Matters Person - Page 7

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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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