US SUPREME COURT DECISIONS

The Internal Revenue Code of 1954, § 167(b)(2), provides an accelerated method of depreciation, known as the "declining balance method" of computing depreciation deductions for income tax purposes; but § 167(c) limits the use of this method to property "with a useful life of 3 years or more." The applicable Treasury Regulation, § 1.167(b), issued in 1956, defines "useful life" as the "period over which the asset may reasonably be expected to be useful to the taxpayer in his trade or business," and § 1.167(b)-2 provides that "in no event shall an asset . . . be depreciated below a reasonable salvage value."

Held.

1. This regulation is valid, Massey Motors, Inc. v. United States, ante, p. 364 U. S. 92, and the declining balance method may not be used in computing the depreciation on the passenger cars used by petitioner in its automobile rental business during the years 1954-1956, inclusive, since they were so used for less than three years. Pp. 364 U. S. 123-124.

2. Since the trucks used in petitioner's truck rental business were so used for more than three years, they were subject to depreciation under the "declining balance method"; but their salvage value at the time of disposition must be accounted for in the depreciation equation. Pp. 364 U. S. 124-129.

(a) Having elected to compute depreciation on the "declining balance method" in connection with his returns for the years 1954-1956, inclusive, petitioner cannot abandon that method on the ground that it results in a retroactive application of a Treasury Regulation issued in 1956. Pp. 364 U. S. 125-126.

(b) The provision of Treasury Regulation §1.167 (b)-2 that, "in no event shall an asset . . . be depreciated below a reasonable salvage value," is valid. Pp. 364 U. S. 126-129.

268 F.2d 604, affirmed. chanrobles.com-red

Page 364 U. S. 123