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Simon v. Commissioner - 68 F.3d 41 (2d Cir. 1995)

Rule:

For the purposes of the recovery property provisions of I.R.C. § 168, "property subject to the allowance for depreciation" means property that is subject to exhaustion, wear and tear, or obsolescence. 

Facts:

Petitioner taxpayers were professional violinists who had purchased antique violin bows, which they used regularly in their profession. In 1989, the tax year in question, the Simons performed in four concerts per week as well as numerous rehearsals with the Philharmonic. Their use of the Tourte bows during the tax year at issue subjected the bows to substantial wear and tear. Believing that they were entitled to depreciate the bows under the Accelerated Cost Recovery System (ACRS) of the Economic Recovery Tax Act of 1981, the Simons claimed depreciation deductions for the two bows on their 1989 Form 1040 in the amount of $ 6,300 and $ 4,515. The parties stipulated that these amounts represent the appropriate ACRS deductions if deductions are allowable. The Tax Court agreed with the Simons and allowed the depreciation deductions. The Commissioner brought the present appeal.

Issue:

May professional musicians take a depreciation deduction for wear and tear on antique violin bows under the ACRS event though they cannot demonstrate that the bows have a determinable useful life?

Answer:

Yes.

Conclusion:

The tax laws have long permitted deductions for depreciation on certain income-producing assets used in a trade or business. Assets used in a trade or business or for the production of income are depreciable if they are subject to wear and tear, decay or decline from natural causes or obsolescence. Assets that do not decline in value on a predictable basis or that do not have a determinable useful life, such as land, goodwill, and stock, are not depreciable. The bows were subject to wear and tear as part of the musicians’ use in their trade.

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