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Rev. Rul. 67-50


Rev. Rul. 67-50; 1967-1 C.B. 60

DATED
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Citations: Rev. Rul. 67-50; 1967-1 C.B. 60

Revoked by Rev. Rul. 72-491

Rev. Rul. 67-50

Advice has been requested whether the declining balance method of computing depreciation, with a rate of one and one-half (150 percent) the applicable straight line rate, may be substituted for the sum of the years-digits method in the situation described below.

A taxpayer acquired an item of "used" depreciable property and computed depreciation on the property by using the sum of the years-digits method.

The taxpayer and the examining agent agree that the use of the sum of the years-digits method is not permitted under section 167(c) of the Internal Revenue Code of 1954, for computing depreciation on taxpayer's "used" property. The taxpayer contended, however, that he should be permitted to substitute the declining balance method of computing depreciation, with a rate not exceeding one and one-half times (150 percent) the appropriate straight line rate, since he could have properly elected that method if he had chosen to use it for the first taxable year the property was acquired.

Section 1.167(b)-1(a) of the Income Tax Regulations provides, in part, that the straight line method of computing depreciation shall be used in all cases where the taxpayer has not adopted a different acceptable method of computing depreciation. The sum of the years-digits method is not an acceptable method for computing depreciation on taxpayer's "used" property, since the property does not qualify for the use of this method under section 167(c) of the Code.

Accordingly, where a taxpayer erroneously used the sum of the years-digits method of computing depreciation on a "used" depreciable asset, he may not substitute the declining balance method of computing depreciation, or any other method other than the straight line method. The straight line method must be used for all taxable years for which the periods of limitations have not expired, and for subsequent taxable years. The taxpayer may, however, file an application on Form 3115, Application for Change in Accounting Method, to change his method of computing depreciation for succeeding years in accordance with sections 1.167(e)-1(a) and 1.446-1(e)(3) of the regulations.

See, however, Revenue Ruling 67-49, page 59, this Bulletin, where a taxpayer erroneously claimed amortization instead of depreciation on leasehold improvements.

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