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demonstrated how income dropped off after the fourth or fifth
quarters of operation.
Petitioner’s argument is unpersuasive. The material fact is
that petitioner depreciated its equipment ratably over a 2-year
period. This fact is undisputed. The tax returns for the years
in issue and the record show that petitioner used a method that
was defined by a “term of years” and that petitioner did not use
the income forecast method. The income forecast method requires
the application of a fraction, the numerator of which is the
income from the gaming equipment for the taxable year, and the
denominator is the forecasted or estimated total income to be
derived from the gaming equipment during its useful life. See
ABC Rentals of San Antonio, Inc. v. Commissioner, T.C. Memo.
1999-14; Rev. Rul. 60-358, 1960-2 C.B. 68. This fraction is
multiplied by the cost of the equipment that produced income
during the taxable year after an appropriate adjustment for
estimated salvage value. Rev. Rul. 60-358, 1960-2 C.B. at 69.
The tax returns show that petitioner calculated the
depreciation deduction using the straight-line method over 2
years, taking 50 percent in the year the equipment was placed in
service, then 50 percent the following year. In order to use the
income forecast method, income must be forecasted. Petitioner
prepared the income schedules submitted to the Appeals Office
long after it filed its tax returns; therefore, we conclude that
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