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Friday, March 14, 2003


Green Forest Manufacturing Inc. depreciated several items of equipment located outside of the United States. IRS determined that the items should be reclassified under MACRS, and that this reclassification is a change in GFM�s method of accounting requiring an adjustment pursuant to section 481(a). GFM conceded reclassification under MACRS, but denied that this constituted a change in the method of accounting. Regulations say that a change in method of accounting does not include an adjustment in the useful life of a depreciable asset. IRS said that the MACRS reclassification was a change in �recovery period� and pointed to their interpretations and Rev. Procs. stating that a change in �recovery period� is different from a change in �useful life� and is a change in accounting method. Tax Court said the difference was too minor to meet the low standard of persuasive deference to the Service�s interpretation of its own regulations, and ruled for GFM. Tax Court pointed out that the small difference between these two concepts does not include a change in �recovery period� causing any items to be counted twice or omitted, the policy reason for section 481(a) adjustments. If the IRS did provide any policy rationales for this difference in their briefs, Tax Court did not mention them in this opinion.

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