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
- §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.
- 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
- 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).