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towels, had a useful life of between 4 and 10 years and were
5-year class property; and the towels had a useful life of more
than 1 year but less than 4 years and were 3-year class property.
Respondent’s adjustment computation schedules explain the
adjustments made by respondent:
Since it has been determined that the taxpayer is
not in the business of selling goods, but rather is in
the business of renting assets, the assets, the Cost of
Goods Sold will be adjusted to reflect this. The cost
of acquiring the rental assets will be capitalized and
depreciated in accordance with Section 168. The basis
of goods sold or disposed of will be currently
deductible. Any period costs will also be allowed as a
current deduction.
* * * * * * *
In order to determine the amount of assets that were 3
year assets (Garments) from assets which are five year
assets (mops, mats) of the total inventory claimed we
have done an allocation.
Taking the total Purchases for * * * [the year], and
noting the % [percentage] that was garments, mats, etc.
we have determined the allocation percentage.
Respondent’s adjustment computation schedules also briefly
describe respondent’s basis for determining the useful lives of
the garments and dust control items:
Taking into consideration only the assets that are
being put into service during the taxable year, and the
useful life to the corporation, we have determined that
there is not one class life, but two, garments, which
are subjected to washing, wear and tear, obsolescence,
change in customer size, etc have a life of 3 years, as
substantially shown via the three year contracts
issued.
However, per the testimony of the plant manager the
clean room garments are expected to last at least five
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