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make a proper election for its taxable year ending May 31, 1987.
We hold further that ABC made a proper election for its short
taxable period ending December 31, 1987, since it substantially
complied with the election requirements for this short taxable
period. For rental units placed in service during taxable years
ending in 1988, the parties have stipulated that both Guaranteed
and ABC properly elected out of MACRS under section 168(f)(1).
Furthermore, in this particular case, since the parties
stipulated as to the estimate of income expected over the life of
the rental property and this estimate approximated petitioners'
experience, and since they stipulated that 1991-92 data did not
vary materially from the years in question, we hold that in this
situation petitioners did accurately forecast the income expected
over the life of the rental property. In addition, since the
salvage value is inconsequential and since the parties stipulated
that 1991 and 1992 data did not vary materially from 1987 and
1988 data, we hold that petitioners did not have to make an
adjustment to the rental units' costs for salvage value.
I. Proper Election
The Court of Appeals has directed us to determine whether
petitioners made a proper election under section 168(f) for the
1987 and 1988 years before us. ABC Rentals of San Antonio, Inc.
v. Commissioner, 142 F.3d at 1211.
Under section 168(f)(1) taxpayers must make a proper
election in the first taxable year for which a depreciation
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