Byron White

“ These provisions indicate a congressional attitude, consistent with the Commissioner's position, that depreciation should not exceed actual, net investment and that excessive depreciation should not be permitted to convert ordinary income into capital gain. The only concrete evidence that Congress was really aware of the Commissioner's position that depreciation should be disallowed in the year of profitable sale is to be found in the House and Senate Reports considering § 1250, the recapture provision dealing with depreciable real estate. ”

“ However, both for administrative and economic reasons, Congress has chosen to allow the taxpayer to take depreciation deductions in advance of the disposition of the asset by estimating what portion of his net investment should be allocated for the use of the asset in any given year. This estimate involves two unknowns: the duration of its use by the taxpayer [2] and the salvage value (resale price of the asset if it is resold) . [3] Every effort must be made, in estimating these two values, to come as close to the actual figures as possible. Massey Motors v. United States, supra. ”

“ Indeed, it is reasonable to use estimates at all only because the actual figures are generally not knowable in advance. However, when the actual figures do become known and they differ materially from the estimates of them previously made and they can be substituted for the estimates with almost no inconvenience or unfairness, then it seems to me to be clearly unreasonable, and hence unauthorized by § 167, to continue to rely on the estimates. ”

“ To the extent that such fluctuations are predictable, they must be considered in making a reasonable estimate of salvage or resale value of the investment. See Bolta Co., 4 CCH Tax Ct.Mem. 1067. [5] In addition, as reflected by this case, predictable market fluctuations in value may also affect the useful life of the asset. To the extent that disposal of an asset by sale becomes more attractive through market appreciation it can be expected that useful life, as defined in Massey Motors, supra, will shorten. ”

“ There is a further alleged inconsistency because the Commissioner may be refusing to allow additional depreciation in the year of sale when salvage value turns out to be less than the adjusted basis at the time of sale. ”

“ United States, supra, n. 1.↑ As is the case with useful life, salvage value should reflect the actualities of the situation. When a depreciated asset is sold the economic reality is that the resale price is the salvage value. This practical definition of salvage value was clearly contemplated in Massey Motors, supra, n. ”

“ For example, if the useful life is determined to be longer than originally believed, the allowable depreciation is not modified for the prior years in which excessive depreciation had been taken, but the remaining undepreciated basis minus salvage value is spread ratably over the new estimated remaining useful life and depreciation deductions taken accordingly for the current and succeeding years. Commissioner of Internal Revenue v. ”

“ Commissioner of Internal Revenue, supra, must be deducted from the taxpayer's initial investment in the asset in order to arrive at a depreciable 'net investment.' I use the word 'investment' rather than 'cost' because 'cost' may have so many different meanings, both to the accountant and to the tax lawyer, and some of those meanings would do considerable violence to the congressional purpose for depreciation allowances.↑ Useful life is to reflect the realities of the taxpayer's actual experience rather than a possibly unrealistic conceptualized idea of inherent physical life. Massey Motors v. ”

“ Even if one views depreciation as representative of the physical exhaustion of an asset, it is not measured in terms of nuts and bolts but in terms of the 'financial consequences to the taxpayer of the subtle effects of time and use on * * * his capital assets.' Detroit Edison Co. v. Commissioner of Internal Revenue, 319 U.S. 98, 101, 63 S.Ct. 902, 904. Investment is not to be measured in terms of original or initial cost, but in terms of 'net investment,' Detroit Edison Co. v. Commissioner of Internal Revenue, supra, 319 U.S. at 103, 63 S.Ct. at 904, or 'actual cost,' Massey Motors v. ”