DEPRECIATION-WORKING WITH THE ADR SYSTEM
Luther W. Linch Partner, Executive Office
*Presented at the University of Miami Tax Conference, Miami Beach-May 1974
The asset depreciation range (ADR) system of depreciating property for tax purposes has been with us for some time, and by now experience may have moderated some of the extreme reactions that greeted its unveiling. "It's a gigantic giveaway to all capital-using business." "The procedures are so complicated and burdensome that, as a practical matter, it cannot be advantageous to use." Somewhere between these extremes lie the real value and effects of ADR, but the value and effects will not be the same for all businesses. For some it is a tremendous tax-saver; for others it is considered too burdensome to use; for still others it provides a relatively trouble-free means of accounting for capital cost recovery for tax purposes.
As many have noted from the very beginning, the ADR rules and regulations are very lengthy and in some areas very complicated. It would serve no useful purpose here to review all of the intricacies of the ADR regulations. However, practice and experience with ADR by the substantial number of businesses that have adopted it have revealed some useful, interesting and unusual planning opportunities that warrant our attention.
Since there are both advantages and disadvantages inherent in ADR for any business, these must be explored in order to decide whether to adopt the system and, if adopted, how best to make use of it. The system provides certain flexibilities not available without the use of ADR, and it contains some restrictions that must be recognized as well.. Advantage can be taken of the flexibilities, and, fortunately, there are ways around some of the restrictions.
One of the factors at the very heart of ADR is the life over which depreciation deductions can be taken in the tax return. The availability of a tax life 20 percent shorter than the former guideline life, without fear of later
*This paper was presented by Richard B. Keigley, partner, Executive Office.