Guideline depreciation & revenue procedure 62-21;

              Guideline Depreciation
Revenue Procedure 62-21
u NTIL THE PROMULGATION of Revenue Procedure 62-21,
revenue agents examined depreciation deductions based
upon facts and circumstances which could be demon­strated
by taxpayers in support of their useful lives. In
the absence of valid support, agents could fall back on
Bulletin F to determine an appropriate life. The Bulletin,
however, had not been revised since 1942 and did not
reflect current obsolescence and usage rates. The new
Revenue Procedure is a result of the Treasury's efforts
to update Bulletin F.
Under the guideline procedure, classes of assets are
generally subject to depreciation by industry rather than
by the nature of the property, as under Bulletin F. Thus,
the same electric drill would have a guideline life of 18
years if used in the production of ferrous metals and a
guideline life of 8 years if used in producing electronic
equipment. No important changes have been made in the
useful lives of buildings except that the procedure requires
building components (which, heretofore, had been depre­ciated
separately from the buildings on a shorter life) to
be included as part of the building and depreciated over
the longer building life.
Rev. Proc. 62-21 is effective for all tax returns filed on
or after July 12, 1962. The general rules provide that
assets are to be categorized by classes and a class life
determined in accordance with technical rules set forth in
Section 4 of the procedure and in Technical Information
Release (TIR) 399. If the class life used is greater than
or equal to the guideline life for a particular class of
assets, no adjustments to useful life may be made by an
examining agent for the first three years to which the
procedure applies (not necessarily the same as the first
three years to which the taxpayer applies the procedure),
and the taxpayer will also get the benefits of the transition
rule discussed below. In using guideline lives or longer,
the taxpayer is entitled to three years of undisturbed
depreciation followed by, at worst, a 25% lengthening of
life with the use of this lengthened life for an additional
undisturbed three years. At best, the use of guideline lives
will entitle the taxpayer to continue computing deprecia­tion
for an indefinite period of time on the lives selected,
as long as retirement and replacement practices are in
accord with depreciation policies.
Where the class life used is less than the guideline life,
the taxpayer will not automatically obtain the benefit of
the original three-year "holiday". However, both the
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