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any method of depreciation not expressed in a term of years”.
Sec. 168(f)(1)(B). Petitioner reported on its tax returns that
it used a straight-line depreciation method over 2 years.
Petitioner deducted 50 percent of the depreciation basis in the
year that the equipment was placed in service,5 and 50 percent in
the next year. Respondent contends that by choosing a method of
depreciation measured by a term of years, petitioner failed the
requirement of section 168(f)(1)(B).
Despite what its tax returns show, petitioner argues that it
did not use a depreciation method defined by a “term of years”.
Petitioner does not deny that it used a 2-year straight-line
depreciation method. Petitioner argues that “Although
petitioner’s Form 4562 depreciates the gaming equipment as 2-year
straight-line depreciation, the factors relied upon by petitioner
in determining that useful life were other factors that had
nothing to do with the wear and tear on the machines”.
Petitioner further argues that it relied on the income forecast
method as well as a combination of other methods to determine the
depreciation deduction. Petitioner noted that, on October 1,
1998, it provided a schedule to the Internal Revenue Service
Appeals officer that tracked the income of its machines and that
5 Petitioner used a half-year convention on its 1995 tax
return for the equipment placed in service after the midpoint of
that year.
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Last modified: May 25, 2011