Simon owned some antique
violin bows that he used in his career as a concert violinist.
When he got the bows they
were appraised at $45k and $35k. After using them for a while, they were
worn out and were only worth $30k and $21.5k.
Since the bows had lost value
because of business use, Simon claimed a deduction for depreciation on his taxes.
Simon used the depreciation schedule in the Accelerated Cost Recovery
System (ACRS) created by the Economic Recovery Tax Act (ERTA).
ACRS (26 U.S.C. §168) allows for depreciation of recovery
property.
§168(c)(1) defines recovery property as
"tangible property of a character subject to the allowance for
depreciation" when "used in a trade or business or...held for
the production of income."
Under the original section
of the tax code (26 U.S.C. §167)
wear and tear on antique violin bows was considered depreciable
property if the owner could demonstrate a determinable useful life.
The IRS denied the deduction.
Simon appealed.
The IRS argued that in order
to be depreciable, there must be a
determinable useful life.
If you don't know what the
life of the asset is, how can you decide how much to depreciate it each
year?
The Trial Court found for
Simon and allowed the deduction. The IRS appealed.
The Appellate Court affirmed.
The Appellate Court found
that all that is required to qualify as recovery property is that the property has to suffer wear and
tear (which the bows did).
