Court Opinion

ID: 4480758
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:30.754204+00
Date Added: 2024-06-11T14:53:13.117307
License: Public Domain

OPINION. ARUndell, Judge: The sole point in controversy is the amount of the “allowable” depreciation on petitioner’s plant and equipment for the 10-year period when no depreciation was claimed on petitioner’s returns and no depreciation was in fact “allowed.” The amount of the allowance for depreciation is the sum which should be set aside for the taxable year in order that, at the end of the useful life of the property used in the business, the aggregate of the sums set aside will (with the salvage value) suffice to provide an amount equal to the original cost. The theory underlying this allowance for depreciation is that by using up the property a gradual sale is made of it. United States v. Ludey, 274 U. S. 295. Under the provisions of the revenue act requiring adjustment for depreciation to the extent allowed, but not less than the amount allowable, the depreciation basis must be reduced by the amount “allowable” each year, whether or not it is claimed and irrespective of whether tax benefits result from its use as a deduction. Virginian Hotel Corporation v. Helviring, 319 U. S. 523. In its computation petitioner has reduced its cost basis by the amount of depreciation “allowed” for each of the years in which depreciation was claimed, since the amounts “allowed” exceed the amounts “allowable” therefor under its computation. Petitioner, however, takes the view that the respondent’s determinations for 1934 and 1935, while fixing “allowed” deductions for those years, did not constitute an “allowance” for depreciation for the prior 10-year period, 1921 to 1923, inclusive, and 1927 to 1933, inclusive, during which no depreciation was claimed by petitioner or “allowed” by the Commissioner. The respondent, on the other hand, contends that the adjustment to the 1934 return necessarily involved the allowance by the Commissioner of the amount of depreciation which had been allowed or was allowable, and that such adjustment constituted an allowance for depreciation for all years prior to that time. If in any year a taxpayer has failed to claim, or has been denied, the amount of depreciation to which he was entitled, rectification of the error must be sought through a review of the action of the Bureau of Internal Revenue for that year. United, States v. Ludey, supra. It is apparent that the method used in calculating depreciation claimed by petitioner and allowed by the respondent for the years 1924, 1925, and 1926 was materially different from that adopted by the respondent in 1934. The amounts allowed for those years vary from some $35,000 to $38,000. Several of the years here in question preceded 1924. The facts and circumstances which necessitated such earlier change are not furnished us. In 1934 the respondent determined that the remaining useful life of the assets was 20 years from June 1,1920, or date of acquisition. Since amounts “allowed” in the 3 earlier years exceeded that “allowable” under the 1934 calculation, they were necessarily undisturbed. Thereafter, until 1939, the petitioner claimed and was allowed depreciation deductions computed on a useful life ending in 1940. It now appears that for petitioner’s taxable year 1939 the respondent determined that the useful life was not 20 years, ending in 1940, but 33 years, ending in 1953. The petitioner concedes the new useful life span, but insists that depreciation “allowable” for the open years be calculated on that basis, granting that amounts “allowed” in prior years are set, inasmuch as they exceed that “allowable” under the latest determination. There is no suggestion whatsoever that the nature and character of petitioner’s business have undergone a change or that the use to which the assets in question are put is not the same as in prior years. The case is one in which a 20-year useful life period was mistakenly applied in 1934 and it now appears that the proper life span was at all times 33 years. In the circumstances, we think it must be held that the depreciation “allowable” for the years in question should be computed upon the longer useful life period. Commissioner v. Kennedy Laundry Co., 133 Fed. (2d) 660; certiorari denied, 319 U. S. 770, is not in point here. In that case the taxpayer had claimed and had been allowed depreciation deductions which were in excess of amounts determined to be allowable for subsequent taxable years. The court held that the taxpayer was not entitled to use the lesser deduction in the earlier years, even though it had failed to benefit from the deductions which it had taken. In the instant case petitioner did not claim depreciation deductions and none were “allowed” in the years with which we are concerned. Here, as in Commissioner v. Kennedy Lumber Co., supra, the amounts claimed and/or allowed in other tax years may not be disturbed, since for all of those years the amounts “allowed” are in excess of the “allowable” under the computation based on a 33-year useful life. However, under the circumstances here present, the depreciation allowable for the open years on the basis of the shorter useful life should, we think, give way to that allowable under a computation based upon the corrected life span. The parties have stipulated that other minor adjustments in question here will follow from our conclusion. It is so ordered. Reviewed by the Court. Decision will be entered under Rule 50.