- 53 -
(1969). Keeping track of prior years' events is especially
necessary where, as in the instant case, the computation involves
the allowance for amortization.
The annual amortization deduction calculation depends on
amortization allowed or allowable in prior years, and is subject
to change in subsequent years if any one of the three factors on
which it is based is redetermined. Moreover, the reasonableness
of an allowance for amortization is to be determined in light of
conditions known to exist at the end of the period for which the
return is made. Sec. 1.167(b)-0(a), Income Tax Regs. The
depreciation regulations, therefore, contemplate that the
allowance may change as conditions change.
The result we reach does no violence to the annual
accounting system. Furthermore, respondent's method does not
disregard the statute of limitations as it does not seek to
modify amortization for prior years.
We conclude that when the original amortizable basis is
redetermined, as in the instant case, the unrecovered cost, as
reduced by the greater of amortization previously allowed or
allowable, less salvage value (if any) should be spread over the
remaining useful life to arrive at the correct annual
amortization allowance for subsequent years.
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