Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 72-76

1972-1 C.B. 13

Sec. 46

IRS Headnote

The Revenue Service will follow the Triangle Publication, Inc. decision that the useful life of an asset for investment credit purposes need not be consistent with the estimated life used under Revenue Procedure 62-21 for years not affected by the Revenue Act of 1971; Revenue Rulings  68-449 and 68-450 modified.

Full Text

Rev. Rul. 72-76

As a result of the decision of the United States Tax Court in Triangle Publications, Inc., 54 T.C. 138 (1970), advice has been requested whether the useful life proven by a taxpayer for investment credit purposes must also be used for depreciation purposes by a taxpayer that elected the guideline procedures under Revenue Procedure 62-21, C.B. 1962-2, 418.

During the years 1963 and 1964, the taxpayer owned numerous tractors and trailers. For depreciation purposes the taxpayer adopted the guideline procedures under Revenue Procedure 62-21. The aforementioned assets were placed in multiple asset accounts and assigned the guideline lives set forth in Part I, Group One, Class 2, of Revenue Procedure 62-21. The taxpayer used a 6 year life for trailers and a 4 year life for tractors. For investment credit purposes, the taxpayer established that the same assets had a reasonable useful life of 8 years or more and claimed the full investment credit.

Section 46(a)(1) of the Internal Revenue Code of 1954 provides, in part, that the amount of credit allowed by section 38 for the taxable year shall be equal to 7 percent of the qualified investment. Section 46(c) of the Code defines "qualified investment" as that percentage of the basis or cost of new or used property placed in service during the year which is determined by reference to the useful life of the property "as of the time such property is placed in service." To obtain the maximum qualified investment the property must have a useful life of 8 years or more.

Section 1.46-3(e) of the Income Tax Regulations provides, in part, that with respect to assets placed in service by a taxpayer during any taxable year, for the purpose of computing qualified investment the estimated useful lives assigned to all assets which fall within a particular guideline class may be determined at the taxpayer's option, under either the "class life system" or the "individual useful life system." They do not preclude a taxpayer from establishing a useful life for investment credit purposes under a facts and circumstances standard.

Revenue Ruling 68-449, C.B. 1968-2, 20, involving the "class life system" and Revenue Ruling 68-450, C.B. 1968-2, 23, involving the "individual useful life system," hold that under those "systems" the estimated useful life of an asset for investment credit purposes must be consistent with the estimated useful life of the asset used for computing depreciation.

Section 1.46-3(e) of the regulations provides permissible methods of determining useful lives of assets for investment credit purposes which are set forth and applied in Revenue Ruling 68-449 and Revenue Ruling 68-450. However, a taxpayer is not precluded from establishing a useful life for investment credit purposes on a facts and circumstances basis, apart from the methods described in section 1.46-3(e) of the regulations.

In Triangle Publications, Inc., the court held, in part, that the useful life of an asset for investment credit purposes need not be consistent with the estimated useful life of that asset being employed for depreciation purposes under  Revenue Procedure 62-21.

The service will follow the decision in Triangle Publications, Inc., acquiescence, page 2.

Accordingly, it is held that in a transaction subject to the provisions of the Code before amendment by the Revenue Act of 1971 (P.L. 92-178, 92nd Cong., H.R. 10947, December 10, 1971, page 443), where a taxpayer adopts the guideline procedures ( Revenue Procedure 62-21 with supplements thereto), the useful lives of his assets under those procedures are not subject to automatic adjustment for depreciation purposes merely because different useful lives have been established for investment credit purposes. The provisions of Revenue Procedure 62-21 as supplemented by Revenue Procedure 65-13, C.B. 1965-1, 759, afford the methods for depreciation purposes by which the useful life of the taxpayer's depreciable assets may be challenged by the Service for taxable years ending before January 1, 1971.

In view of the foregoing, Revenue Ruling 68-449 and Revenue Ruling 68-450 are modified to the extent they may imply that the methods described therein are the only permissible methods of determining useful lives of assets for investment credit purposes when guideline procedures are adopted for the purpose of computing depreciation for taxable years not affected by the Revenue Act of 1971.