- 22 -
elect that excludes the property from ACRS; and
(2) the depreciable basis (cost or other basis,
reduced, if applicable, by salvage value, half the
investment credit, and the section 179 expense).
Enter the depreciation deduction for the property in
column (f).
The Form 4562 filed with ABC's tax return for the year
ending May 31, 1987, contains the heading on line 7 "Property
subject to section 168(e)(2) election."10 However, ABC left
column (f) of line 7 blank. Rather, it appears the depreciation
deduction for the rental property has been included in column (f)
of line 8--"Other depreciation" where a $119,195 deduction is
claimed. Thus, ABC failed to indicate that any of its property
was subject to the section 168(f)(1) election. Moreover, ABC
failed to indicate on its Form 4562 or on its return that it was
using the income forecast method of depreciation. The only
methods of depreciation indicated on its return are "ACRS" and
"DDB".
ABC was not even in substantial compliance with the election
requirements. Nothing in ABC's return or on the attached Form
4562 indicates it was electing the income forecast method of
depreciation. Knight-Ridder Newspapers, Inc. v. United States,
supra at 793-99. Thus, ABC did not comply with the requirements
of Revenue Procedure 87-57, supra, or section 5h.5, Temporary Tax
Reform Act of 1986 Election Regs., supra, nor did it comply with
section 1.168-5(e)(3), Proposed Income Tax Regs., supra, or even
with the Instructions that came with Form 4562. Consequently, we
10See supra note 7.
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