Rev. Rul. 75-92

The Internal Revenue Service has been asked to explain the application of Rev. Proc. 72-10, 1972-1 C.B. 721, Rev. Proc. 74-27, 1974-2 C.B. 480, and Rev. Proc. 74-30, 1974-2 C.B. 483, under the circumstances described below.

Rev. Proc. 72-10 prescribes asset guideline classes and periods, asset depreciation ranges, and asset guideline repair allowance percentages for a broad range of assets, including asset guideline class 33.1--Manufacture of ferrous primary metals, with an asset guideline period of 18 years and a repair allowance percentage of 8.0 percent.

Rev. Proc. 74-27, published in the Internal Revenue Bulletin on September 16, 1974, prescribes an asset guideline subclass 49.5, Industrial steam and electric generation and distribution systems, with an asset guideline period of 28 years and a repair allowance percentage of 2.5 percent.

Rev. Proc. 74-30, published in the Internal Revenue Bulletin on September 16, 1974, prescribes subclasses for special tools (subsidiary assets) in various manufacturing activities, including asset guideline class 33.11, Manufacture of ferrous primary metals--special tools, with an asset guideline period of 6.5 years and a repair allowance percentage of 4.0 percent.

A calendar year taxpayer engaged in the manufacture of ferrous primary metals placed in service during 1974 assets described in asset guideline class 33.1 (Manufacture of primary ferrous metals), assets described in asset guideline class 49.5 (Industrial steam and electric generation and distribution systems), and assets described in asset guideline class 33.11 (Manufacture of ferrous primary metals--special tools).

The specific question is which asset guideline classes may the taxpayer use for assets placed in service in 1974, based on the provisions of sections 1.167(a)-11(b)(4)(ii) and 1.167(a)-11(d)(2)(iii) of the Income Tax Regulations.

Section 1.167(a)-11(b)(4)(ii) of the regulations provides that asset guideline classes and periods and asset depreciation ranges will from time to time be established, supplemented, and revised with express reference to section 1.167(a)-11, and will be published in the Internal Revenue Bulletin. The asset guideline classes, the asset guideline periods, and the asset depreciation ranges determined from such periods in effect as of the last day of a taxable year of election shall apply to all vintage accounts of such taxable year, except that neither the asset guideline period nor the lower limit of the asset depreciation range for any such account shall be longer than the asset guideline period or the lower limit of the asset depreciation range, as the case may be, for such account in effect as of the first day of the taxable year (or as of such later time in such year as an asset guideline class first established during such taxable year becomes effective).

Section 1.167(a)-11(d)(2)(iii) of the regulations provides, in part, that repair allowance percentages will from time to time be established, supplemented, and revised with express reference to section 1.167(a)-11, and will be published in the Internal Revenue Bulletin. The repair allowance percentages in effect on the last day of the taxable year shall apply for the taxable year, except that the repair allowance percentage for a particular taxable year shall not be less than the repair allowance percentage in effect on the first day of such taxable year (or as of such later time in such year as a repair allowance percentage first established during such year becomes effective).

At the beginning of 1974 and prior to the publication of Rev. Proc. 74-27 and Rev. Proc. 74-30 the taxpayer's assets now described in asset guideline classes 49.5 and 33.11 were described and included in asset guideline class 33.1. The asset guideline period for asset guideline class 49.5 (28 years) is longer than the asset guideline period in existence at the beginning of 1974 (18 years) for the assets described therein. On the other hand, the asset guideline period for asset guideline class 33.11 (6.5 years) is shorter than the asset guideline period in existence at the beginning of 1974 (18 years) for the assets described therein. In addition, the asset guideline repair allowance percentages for asset guideline class 33.11 (4.0 percent) and asset guideline class 49.5 (2.5 percent) are lower than the asset guideline repair allowance percentage in existence at the beginning of 1974 (8.0 percent) for the assets described therein.

Under the above circumstances, if the instant taxpayer elects the asset depreciation range system for 1974 under the provisions of section 1.167(a)-11 of the regulations, he has several options with respect to such property. For assets placed in service in 1974 he may include in asset guideline class 33.1 all of the assets described above. On the other hand, he may include in asset guideline class 33.1 the assets described in that class as well as assets described in asset guideline class 49.5, while including in asset guideline class 33.11 the assets described therein. Instead, he may include in asset guideline class 33.1 the assets described in that class as well as the assets described in the asset guideline class 33.11, while including in asset guideline class 49.5 the assets described therein. Finally, he may elect to (1) include in asset guideline class 33.1 the assets described in that class, (2) include in asset guideline class 33.11 the assets described in that class, and (3) include in asset guideline class 49.5 the assets described in that class. The taxpayer may elect any of the above options regardless of whether he elects to apply the repair allowance for any of the asset guideline classes for 1974. However, if any repair allowance is applied, it must be the one attributable to the asset guideline class used.

With respect to assets placed in service in taxable years beginning on or after September 16, 1974, the date of publication of Rev. Proc. 74-27 and Rev. Proc. 74-30 in the Internal Revenue Bulletin, any taxpayer electing to apply the provisions of section 1.167(a)-11 of the regulations must include the assets described above in the appropriate asset guideline classes, class 33.1, class 33.11 and class 49.5, as the case may be.