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The sole issue is whether petitioner properly elected to opt
out of depreciating its rental game equipment under the modified
accelerated cost recovery system (MACRS) pursuant to section
168(f)(1).
Background
At the time of the filing of the petitions,2 petitioner was
a corporation that maintained its legal residence in Sacramento,
California. For the periods in issue, petitioner had fiscal
years ending March 31, 1994, 1995, and 1996 (the 1994, 1995, and
1996 tax years, respectively).
Petitioner rented electronic gaming equipment to
establishments in California. In each of the tax years in issue,
petitioner placed gaming equipment in service.
On its 1994 tax return, petitioner reported on Form 4562,
Depreciation and Amortization, amounts on the lines for “GDS and
ADS deductions for assets placed in service in tax years
beginning before 1993” and “ACRS and other depreciation”.
Petitioner did not report any amount on the line for “Property
subject to section 168(f)(1) election”.
On its 1995 and 1996 tax returns, petitioner again reported
amounts on Form 4562 on the lines for “GDS and ADS deductions for
2 Respondent sent separate notices of deficiency to
petitioner, and petitioner filed separate petitions for: (1) The
1994 tax year and (2) the 1995 and 1996 tax years. We issued an
order consolidating the two cases for trial, briefing, and
opinion.
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