Joseph M. and Marjorie Sita - Page 8




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          on a preponderance of the evidence.  See Arevalo v. Commissioner,           
          124 T.C. at 250-251.                                                        
          II. Depreciation Deduction                                                  
               Section 167(a) allows as a depreciation deduction a                    
          reasonable allowance for the “exhaustion, wear and tear” of                 
          property (1) used in a trade or business or (2) held for the                
          production of income.                                                       
               Depreciation deductions are based on investment in and                 
          actual ownership of property rather than on possession of bare              
          legal title.  See Arevalo v. Commissioner, 124 T.C. at 251; Grant           
          Creek Water Works, Ltd. v. Commissioner, 91 T.C. 322, 326 (1988);           
          Narver v. Commissioner, 75 T.C. 53, 98 (1980), affd. 670 F.2d 855           
          (9th Cir. 1982).  The transfer of formal legal title does not               
          shift the incidence of taxation attributable to ownership of                
          property where the transferor continues to retain significant               
          control over the property transferred.  Arevalo v. Commissioner,            
          469 F.3d at 439; Crooks v. Commissioner, 453 F.3d at 656; see               
          also Frank Lyon Co. v. United States, 435 U.S. 561, 572-573                 
          (1978); Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C. 1221,           
          1236 (1981).                                                                
               If the benefits and burdens reflecting ownership have not              
          passed from “seller” to “purchaser”, the transfer of formal legal           
          title is disregarded when determining ownership of an asset for             
          purposes of depreciation.  See Arevalo v. Commissioner, 469 F.3d            







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