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

  • Simon owned some antique violin bows that he used in his career as a concert violinist.
    • When he got the bows they were appraised at $45k and $35k. After using them for a while, they were worn out and were only worth $30k and $21.5k.
  • Since the bows had lost value because of business use, Simon claimed a deduction for depreciation on his taxes.
    • Simon used the depreciation schedule in the Accelerated Cost Recovery System (ACRS) created by the Economic Recovery Tax Act (ERTA).
      • ACRS (26 U.S.C. 168) allows for depreciation of recovery property.
        • 168(c)(1) defines recovery property as "tangible property of a character subject to the allowance for depreciation" when "used in a trade or business or...held for the production of income."
    • Under the original section of the tax code (26 U.S.C. 167) wear and tear on antique violin bows was considered depreciable property if the owner could demonstrate a determinable useful life.
  • The IRS denied the deduction. Simon appealed.
    • The IRS argued that in order to be depreciable, there must be a determinable useful life.
      • If you don't know what the life of the asset is, how can you decide how much to depreciate it each year?
  • The Trial Court found for Simon and allowed the deduction. The IRS appealed.
  • The Appellate Court affirmed.
    • The Appellate Court found that all that is required to qualify as recovery property is that the property has to suffer wear and tear (which the bows did).