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from the rent-to-own equipment for the taxable year, and the
denominator of which is the forecasted or estimated total income
to be derived from the rent-to-own equipment during its useful
life. Rev. Rul. 60-358, 1960-2 C.B. 68. This fraction is
multiplied by the cost of the rent-to-own equipment which
produced income during the taxable year, after appropriate
adjustment for estimated salvage value. Id.
A. Income Forecast
Respondent contends that in applying the income forecast
method of depreciation, petitioners failed to forecast accurately
the income to be received from the assets being depreciated. In
fact, respondent contends that the income to be received from
equipment placed in service was never forecast. Rather, 300
percent of the asset's cost was always used as the denominator of
the fraction. While the latter may be true, the parties
stipulated that petitioners estimated that the total gross rental
anticipated to be received on each rental unit would be 300
percent of its initial cost, which was consistent with the
practice in the rent-to-own industry.
Each Entity's 1991 and 1992 experience data indicates that,
per category of rental units, the actual average total amount of
gross rental the Entities received under all rental contracts for
a rental unit in such category was the product of the initial
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