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reduced by the greater of the amount of depreciation that is
allowed or allowable in a tax year.
The expenditures that petitioners made in 1985 to acquire
and improve the bus would have been recovered completely in 1989.
See sec. 168(b)(1), I.R.C. 1954 (as amended). Although it may
seem a harsh result as petitioners did not claim the full amount
of depreciation allowable, these costs provide petitioners no
basis in 1990. The expenditures that petitioners made in 1986 to
improve the bus would have been recovered completely in 1990;
however, as the bus was destroyed in that year, no deduction is
allowed. See sec. 168(d)(2)(B), I.R.C. 1954 (as amended).
Accordingly, we find that petitioners had an adjusted basis in
the bus at the time of the involuntary conversion that is equal
to the percentage of the costs incurred during 1986 allowable for
recovery in 1990. That basis and the consequent amount of gain
that petitioners must recognize can be determined by the parties
in their Rule 155 calculations.
Issue 2. Addition to Tax for Failure To Timely File
Respondent determined that petitioners are liable for the
addition to tax pursuant to section 6651(a)(1) for 1991. Section
6651(a)(1) imposes an addition to tax for failure to file a
return on the date prescribed (determined with regard to any
extension of time for filing), unless the taxpayer can establish
that such a failure is due to reasonable cause and not due to
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