Rev. Rul. 59-389

Advice has been requested whether a taxpayer, who elects to use the declining balance method or any other method of computing depreciation for Federal income tax purposes, is required to use the same method of computing depreciation on his books of account.

Section 167(a) of the Internal Revenue Code of 1954 allows as a depreciation deduction a reasonable allowance for exhaustion, wear and tear (including a reasonable allowance for obsolescence) of property used in the trade or business, or of property held for the production of income. Subsection (b) of section 167 provides for the use of certain methods and rates of computing depreciation for taxable years ending after December 31, 1953.

I.T. 3818, C.B. 1946-2, 42, holds, in part, that the use of the declining balance method of computing depreciation will be approved, for Federal income tax purposes, provided it accords with the method of accounting regularly employed in keeping the books of the taxpayer.

Revenue Ruling 57-352, C.B. 1957-2, 150, holds that the declining balance method of computing depreciation, using a rate not in excess of one and one-half times (150 percent) the applicable straight line rate, is permissible for computing depreciation under section 167 of the 1954 Code.

Section 1.167(a)-7(c) of the Income Tax Regulations provides that when depreciation reserves for book purposes do not correspond with reserves maintained for tax purposes, because of different methods of depreciation, bases, rates, salvage, or other factors, permanent auxiliary records shall be maintained with the regular books of account to reconcile such differences. See also Rev. Rul. 58-601, C.B. 1958-2, 81.

Accordingly, it is held that a taxpayer who elects to use the declining balance method or any other method of computing depreciation for Federal income tax purposes is not required to reflect that method of computing depreciation in his books of account, provided permanent auxiliary records are maintained with the regular books of account for the purpose of reconciling the book depreciation with the tax depreciation.

To the extent that I.T. 3818, supra , holds that the declining balance method of computing depreciation for income tax purposes must accord with the method of accounting regularly employed in keeping the books of account, it is hereby modified.

Revenue Ruling 57-352, supra , which permits the use of the declining balance method, using a rate not in excess of one and one-half times (150 percent) the applicable straight line rate, under the 1954 Code, is hereby amplified.