PC yet CPA went with 7yrs in 2009

[AZ-Tax]

As long as I can remember, PC were always 5 yrs. New S-Corp client preparing 2010 tax return.

Also CPA elect 7yrs on printer as well.

[taxea]

Make an adjustment on the current year to correct it and tell TP to inform his CPA of the error.

[ChEAr$]

Make an adjustment on the current year to correct it and tell TP to inform his CPA of the error.

I think he did right. One may always elect a (alternate) longer period.

Sometimes it just makes sense.

[erchess]

WOW Harlan

I didn't know that. I was however under the impression that for tangible personal property the Service would always allow seven year recovery.

[Gary2]

I think he did right. One may always elect a (alternate) longer period.

Sometimes it just makes sense.

Does it have to be ADS, i.e. straight line?

[ChEAr$]

Does it have to be ADS, i.e. straight line?

Can't think of any reason why it would have to be.

[dtlee]

I am going to continue to research this, but I was under the impression that under MACRS, we are required to use the General Depreciation System (GDS) recovery period unless the taxpayer elects to use or is required to use the Alternative Depreciation System (ADS) recovery period.

I know we had more flexibility under the old (very old?) depreciation rules, but I thought the newer rules were intended to standardize the periods used.

I am going out on a limb to say that §168 tells us we must use the applicable deprecation method, recovery period, and convention determined by the characteristics of the property and when it is placed in service. I did not really find any wiggle room for the scenario of a computer purchased in 2009. Both the GDS and ADS lives are five years.

Do we have a cite for giving us greater leeway on this?

Thanks.

[erchess]

One decision that must be made

is which of three policies we are going to follow.

Policy A says I am only going to do things where I find black letter law saying yes I can do that.

Policy B says if I observe that what I want to do hurts the government's interest in collecting the maximum tax in the long run no more than something I know I can do under Policy A then I am going to do it and expect to survive on audit.

Policy C says if I hear anecdotally of a taxpayer getting away with something that would benefit my client, I'm going for it and hoping for the best.

Personally, I try to stay under A but I have gone under B but I'm not aware of having relied upon C.

[Bees Knees]

I think he did right. One may always elect a (alternate) longer period.

I disagree.

There are two elections that can be made to depreciate an asset slower than the regular MACRS method:

1) Optional GDS method: (from TTB page 9-12)

Optional GDS methods. The taxpayer may elect to depreciate
MACRS property more slowly than under the default methods.
• The election is made by using one of the optional methods on
Form 4562 in the year the property is placed in service.
• The election must cover all property in the same class placed in
service that year. [IRC §168(b)(5)]
• If the property qualifies for: The Optional GDS method is:
200DB............................................. .... 150DB or SL
150DB............................................. .... SL

Nothing in code section 168(b) allows you to pick a longer period of time to depreciate the asset. The slower depreciation refers to using 150%DB or SL rather than 200%DB. The class life still remains the same.

2) Alternative Depreciation System (ADS): (from TTB page 9-12)

Alternative Depreciation System (ADS)
Depreciation method and recovery periods. Depreciation under
ADS uses the SL method. ADS recovery periods are longer
for most assets, resulting in a less accelerated method of cost recovery
than under GDS. See page 9-7 through page 9-9 for information
on ADS recovery periods….

Election. In all other situations, use of ADS requires an election.
The election is made when the method is used on a timely-filed
return (including extensions) for the year in which the property
was placed in service. Depreciation under ADS is reported on
Part III, Section C, Form 4562.

Note that if you want longer recovery periods, you have to elect the ADS recovery method, which is SL over the ADS recovery periods. However, just like regular MACRS, the ADS recovery periods are set by law. You cannot make up your own recovery periods.

For computers, regular MACRS, Optional GDS, and ADS ALL have a 5 year class life (see TTB page 9-8). 7 years is not an option. Thus, the CPA who used 7 years for the computer did it wrong.

[dtlee]

is which of three policies we are going to follow.

Policy A says I am only going to do things where I find black letter law saying yes I can do that.

Policy B says if I observe that what I want to do hurts the government's interest in collecting the maximum tax in the long run no more than something I know I can do under Policy A then I am going to do it and expect to survive on audit.

Policy C says if I hear anecdotally of a taxpayer getting away with something that would benefit my client, I'm going for it and hoping for the best.

Personally, I try to stay under A but I have gone under B but I'm not aware of having relied upon C.

I tend to agree with your philosophy, but there are things that are definitely not allowed. For example, when the regulations state:

Except for property excluded from the application of section 168 as a result of section 168(f) or as a result of a transitional rule, the provisions of section 168 are mandatory for all eligible property.

it does not appear to give me the option to chose to use an alternate method not prescribed in that section.

[joanmcq]

Computers USED to be 7 year property. But I can't tell you when that changed.

Must've been an old preparer.