- 24 - A prepayment for multiyear insurance coverage creates an asset having a useful life longer than a taxable year, which must be capitalized. See Higginbotham-Bailey-Logan Co. v. Commissioner, 8 B.T.A. 566, 577 (1927); sec. 1.461-4(g)(8), Example (6), Income Tax Regs.; see also USFreightways Corp. v. Commissioner, 113 T.C. ___ (1999); Johnson v. Commissioner, supra at 488; Hinshaw’s, Inc. v. Commissioner, T.C. Memo. 1994-327. The prepaid insurance is an intangible, and its coverage period gives it a determinable useful life, making it eligible for a “depreciation allowance”. Sec. 1.167(a)-3, Income Tax Regs. The rules for computing the proper period for a depreciation allowance are provided in section 1.167(a)-10(b), Income Tax Regs., which states in relevant part: (b) The period for depreciation of an asset shall begin when the asset is placed in service and shall end when the asset is retired from service. A proportionate part of one year’s depreciation is allowable for that part of the first and last year during which the asset was in service. * * * In general, “an asset is ‘placed in service’ for depreciation purposes when it is acquired and available for use.” Clairmont v. Commissioner, 64 T.C. 1130, 1136 (1975), affd. without published opinion 538 F.2d 332 (8th Cir. 1976). Petitioners’ claim of a full year’s amortization in the first year that a multiyear insurance policy is acquired or placed in service, without regard to when during the year the policy was in factPage: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Next
Last modified: May 25, 2011