Rev. Proc. 68-27

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to prescribe the procedures applicable under section 3.05, Part II, of Revenue Procedure 62-21, C.B. 1962-2, 418, in those cases in which there are additions, retirements, or replacements of assets to an account that had previously justified a shorter than guideline class life.

SEC. 2 BACKGROUND.

Section 3.05, Part II, of Revenue Procedure 62-21, states the following:

Where the class life used by a taxpayer was examined by the Internal Revenue Service and was accepted by reason of subsection .02, .03, or .04 of this section, or where such class life was accepted on audit by the Internal Revenue Service under presently established procedures for examining depreciation (whether before or after the effective date of this Revenue Procedure) the depreciation deduction claimed by the taxpayer for the assets in that class in any subsequent taxable year based on that class life will not be disturbed if the taxpayer's retirement and replacement practices for that class are consistent with the class life being used. * * *.

SEC. 3. APPLICATION.

Section 3.05, Part II, of Revenue Procedure 62-21 is not to be applied without regard to the underlying facts. The applicability of this section is dependent upon the relative proportions of the different types of assets in the account at the time a shorter than guideline life was justified which proportions were not being substantially altered by subsequent additions, retirements, or replacements. Whether subsequent additions, retirements, or replacements substantially alter the rlative proportions of the different types of assets in an account is a question of fact. The principle involved in such determination is enunciated in Example 2 of section 1.167(b)-1(b) of the Income Tax Regulations in which the composite depreciation rates of composite accounts remain unchanged as long as subsequent additions, retirements, or replacements do not substantially alter the relative proportions of different types of assets in the accounts.

SEC. 4. CONCLUSION.

In situations in which the relative proportions of the different types of assets in an account are in fact substantially altered by subsequent additions, retirements, or replacements to the account, a previously justified shorter than guideline class life holds no significance and section 3.05, Part II, of Revenue Procedure 62-21 is not applicable.

SEC. 5. EFFECT ON OTHER DOCUMENTS.

Revenue Procedure 62-21 is amplified.