William O. Douglas

“ The Treasury is obliged to rely very largely upon the good faith and judgment of the taxpayer in the determination of the allowances for depreciation, since these are primarily matters of judgment and are governed by facts particularly within the knowledge of the taxpayer, and the Treasury should not be penalized for having approved the taxpayer's deductions. ”

“ When it is found, and after making allowance for probable salvage value at the time of retirement, it is a mere matter of mathematics to compute under the straight-line method the rate of annual accrual.
This rate when applied to the cost of the depreciable property fixes two things: (1) The amount of the depreciation accrual to deduct from gross, before determining net, income. For this purpose a high rate works in favor of the taxpayer for any given year. (2) It also determines the amount by which the cost base must be reduced for application of depreciation rates the following year. ”

“ Moreover the basis must be reduced by that amount even though no tax benefit results from the use of depreciation as a deduction. Wear and tear do not wait on net income. Nor can depreciation be accumulated and held for use in that year in which it will bring the taxpayer the most tax benefit. ”

“ It is equally true and obvious. and of some importance to the correct interpretation of the statute, that any depreciation in excess of the reasonable allowance authorized can, under the statute, result in no tax advantage to the taxpayer and in no tax prejudice to the Government, unless the excess has in fact been deducted from the taxpayer's gross income. ”

“ Its decision in the Kennedy Laundry Co. case was reversed by the Circuit Court of Appeals. 7 Cir., 133 F.2d 660.↑ Sec. 113 (b) (1) (B) which is made applicable by reason of § 23 (n) , § 114, and § 113 (a) .↑ For a summary of the legislative history, see 40 Col.L.Rev. 540.↑ S. Rep. ”