- 28 -
property is disposed of prematurely, thereby triggering the
recapture provisions. Section 1.47-1(e)(1)(i), Income Tax Regs.,
requires that a taxpayer’s records show: (1) The date on which
the section 38 property is disposed of or otherwise ceases to be
section 38 property; (2) the estimated useful life of the section
38 property as determined by reference to section 1.46-3(e),
Income Tax Regs.; (3) the month and taxable year that the section
38 property was placed in service; and (4) the basis of the
section 38 property.
A taxpayer who fails to keep these records required for
identification of ITC property becomes subject to a series of
special rules. Under these special rules, a taxpayer is treated
as having disposed of, in the taxable year, any ITC property
which he is unable to establish was still on hand at the end of
that taxable year. If that deemed disposition occurs within the
recapture period of the estimated useful life of the property,
recapture results. If the taxpayer fails to establish when the
ITC property being retired during the taxable year was actually
placed in service, the taxpayer is treated as having placed it in
service in the most recent prior year in which similar property
was so placed in service. This result shall govern unless and
until the taxpayer can prove that the property placed in service
in that most recent year is currently on hand. In that event,
the taxpayer will be treated as having placed the retired
Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 NextLast modified: May 25, 2011