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280F, which limits the deduction of luxury automobiles, they are
entitled to a $1,417 deduction relating to 1994.
Petitioners bought the Rolls Royce for $27,000 in 1984 and
placed it in service that year. Once placed in service
depreciation continues until the cost basis of the property has
been either recovered through previously allowed or allowable
depreciation deductions or the property is retired from service
(i.e., sold, abandoned, or destroyed). Sec. 1.167(a)-10, Income
Tax Regs.; Rev. Proc. 87-57, sec. 2.05, 1987-2 C.B. 687, 688.
Petitioners’ automobile was not retired from service prior to the
years in issue. Thus, pursuant to section 280F(a), the
automobile would have been fully depreciated well before
petitioners filed their 1994 return, on which they deducted the
$1,475. Sec. 280F(a)(2)(B)(iv); sec. 1.167(a)-10(a), Income Tax
Regs. Accordingly, their deduction is disallowed. Because
petitioner is an employee of Western, we also hold that the
$39,000 expense is deductible as a miscellaneous itemized
deduction. Sec. 67(a).
VI. Penalties
Section 6662(a) imposes a 20-percent accuracy-related
penalty on the portion of an underpayment of tax which is
attributable to a taxpayer’s negligence or disregard of rules or
regulations. Sec. 6662(b)(1). Section 6664(c)(1) provides that
no penalty shall be imposed if it is shown that there was
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