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OPINION
I. General Rules
A. Depreciation Deductions
Depreciation deductions are primarily governed by sections
167 and 168. Section 168 describes a specific depreciation
system for tangible property. As part of the Tax Reform Act of
1986, Pub. L. 99-514, secs. 201, 203, 100 Stat. 2122, 2143,
Congress replaced the accelerated cost recovery system with
MACRS, effective generally for property placed in service after
December 31, 1986, and section 168 was amended accordingly. As
such, depreciation deductions for tangible property placed in
service after 1986 are generally determined under section 168.
Section 168 prescribes two systems for determining depreciation
deductions: (1) The general depreciation system in section
168(a), and (2) the alternative depreciation system in section
168(g). Taxpayers are required to use the alternative
depreciation system for “any tangible property which during the
taxable year is used predominantly outside the United States”.
Sec. 168(g)(1)(A).
B. Adjustments Pursuant to Section 481
Section 481(a) provides for adjustments required by changes
in a taxpayer’s method of accounting. If a taxpayer has changed
his method of accounting, the taxpayer must take “into account
those adjustments which are determined to be necessary solely by
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Last modified: May 25, 2011