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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."8 The 1986 instructions
for this form provide that line 7 should be used to report
property that the taxpayer elects, under section 168(e)(2), to
depreciate by any method not based on a term of years.
Furthermore, the instructions provide that the depreciation
deduction for the property should be entered in column (f) of
line 7.9 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. ABC failed to indicate on its
Form 4562 or anywhere else 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".
8Sec. 168(e)(2) is the predecessor to sec. 168(f)(1) and
applies to property placed in service prior to Jan. 1, 1987.
ABC's tax return for the year ended May 31, 1987, contains
depreciation deductions for property placed in service from June
1 through Dec. 31, 1986, which would be governed by the former
sec. 168(e)(2) as well as property placed in service from Jan. 1
through May 31, 1987, which would be governed by sec. 168(f)(1).
9See infra pp. 21-22.
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