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constructed at a cost of $578,030 based on a 3-year useful life.
Subsequently, the Internal Revenue Service disallowed part of the
taxpayer's depreciation deductions claiming that the buildings
had either (1) a useful life of 40 years with no salvage value,
or (2) a useful life of 3 years with a salvage value of $389,375.
The District Court subsequently determined that the buildings had
a useful life of 10 years with no salvage value. The parties
could not agree on the proper method of computing the allowable
depreciation deduction for the 10-year period. The Court of
Appeals for the Tenth Circuit set forth the appropriate procedure
for determining subsequent allowable depreciation when assets
have previously been excessively depreciated as follows:
If at any time before property is discarded it develops
that its useful life has been inaccurately estimated,
depreciation should not be modified for prior years,
but the remainder of the cost, or other basis not
already provided for through a depreciation reserve or
deducted from book value, should be spread ratably over
the estimated remaining life of the property, and
depreciation deductions taken accordingly.
Id. at 1170; see also Cohn v. United States, 259 F.2d 371, 377-
378 (6th Cir. 1958) (upon redetermination of the useful life,
depreciation is not modified for prior years, but the remaining
depreciated cost is spread ratably over the new estimated
remaining useful life and depreciation deductions taken
accordingly for the current and succeeding years). We conclude
that the same logic should apply where a property's basis for
amortization is redetermined.
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