dissenting: Section 168(a) allows a deduction with respect to recovery property. For purposes of section 168(a), property is recovery property if, among other things, it is tangible property of a character subject to the allowance for depreciation. Sec. 168(c)(1). Petitioners bear the burden of proving that the viol is recovery property. Rule 142(a). The majority has found that “Petitioner’s use of the Viol subjected it to wear and tear that did not reduce its economic value.” Majority op. p. 288. The majority has also found that, with regard to valuable instruments such as the viol, “there is no evidence that such wear and tear [as is suffered by musical instruments in general] exhausts the utility and value of the instruments over definite time periods.” Id. Based on those two findings, I would conclude that petitioners have failed to carry their burden of proving that the viol is recovery property, because they have failed to prove that it is of a character subject to the allowance for depreciation. Accordingly, I would hold for respondent that petitioners are not entitled to a deduction under section 168 with respect to the viol.
Relationship Between Sections 167 and 168
Section 167(a) provides that a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in the trade or business or of property held by the taxpayer for the production of income shall be allowed as a depreciation deduction. In the case of recovery property within the meaning of section 168, the deduction allowable under section 168 is, with certain exceptions, deemed to constitute the reasonable allowance provided for by section 167. If not clear from the face of the statute, pertinent legislative history makes clear that no property for which a depreciation deduction would be unavailable under section 167 can qualify for a deduction under section 168.1 Indeed, section 1.168-3(a)(1)(h), Proposed Income Tax Regs., 49 Fed. Reg. 5957 (Feb. 16, 1984), states: “Property is considered recovery property only if such property would have been depreciable under section 167.”
The Relationship of Wear and Tear to Useful Life
Under section 167, it is necessary to establish the useful life of property in order to determine the year’s allowance for exhaustion, wear and tear, and obsolescence. Section 1.167(a)-l(a), Income Tax Regs., provides, in part:
The allowance is that amount which should be set aside for the taxable year in accordance with a reasonably consistent plan (not necessarily at a uniform rate), so that the aggregate of the amounts set aside, plus the salvage value, will, at the end of the estimated useful life of the depreciable property, equal the cost or other basis of the property as provided in section 167(g) and § 1.167(g)-l. * * *
It is beyond dispute that no deduction is allowable under section 167 with respect to property that does not have a determinable useful life (i.e., a useful life capable of being settled, fixed, or determined). See, e.g., Westinghouse Broadcasting Co. v. Commissioner, 309 F.2d 279 (3d Cir. 1962) (no depreciation deduction for television network affiliation contract automatically renewable for successive 2-year terms), affg. 36 T.C. 912 (1961); Harrah’s Club v. United States, 228 Ct. Cl. 650, 661 F.2d 203, 207 (1981) (costs of restoring antique cars and preparing them for showing in museum not depreciable in absence of proof that cars deteriorate or lose value over time: “Property with an indeterminate life is nondepreciable.”). Wear and tear clearly are factors to be considered in fixing or determining the useful life of property. See sec. 1.167(a)-l(b), Income Tax Regs. Nevertheless, the useful life of property may remain undetermined (i.e., undeterminable) despite a showing of wear and tear. As Professors Bittker and Lokken have put it: “the taxpayer must be able to show that the property is subject to exhaustion, wear and tear, or obsolescence during a period whose duration can be estimated with reasonable accuracy”. Bittker & Lokken, Federal Taxation of Income, Estates and Gifts, par. 23.2.4, at 23-32 (2d ed. 1989) (emphasis added); see sec. 1.167(a)-3, Income Tax Regs, (depreciation allowed for intangibles reasonably shown to be of use for only a limited period). Thus, for instance, if regular maintenance would prevent or restore the loss in utility occasioned by wear and tear (such that, on account of such maintenance, the property will not wear out), the expectation of wear and tear alone is an insufficient basis upon which to claim a deduction for depreciation. See Lindheimer v. Illinois Bell Tel. Co., 292 U.S. 151, 167 (1934) (depreciation represents “the loss, not restored by current maintenance, which is due to all the factors causing the ultimate retirement of the property. These factors embrace wear and tear, decay, inadequacy, and obsolescence.” (Emphasis added.)).
Majority’s Findings
The majority finds that the wear and tear suffered by the viol is not of a kind that would force the viol to be retired from service after a determinable period. Majority op. p. 288. Indeed, it appears that, with regular maintenance, the viol has remained playable for over 200 years. Simply put, the viol is not property subject to wear and tear that, in a tax sense, limits its life and entitles the owner to a deduction for depreciation.
Majority’s Failing
The majority has failed to discriminate between property with a useful life that, although undetermined, is determinable and property with a useful life that is indeterminable. The majority’s failure results from its misidentification of “property of a character subject to the allowance for depreciation”. See sec. 168(c)(1). By focusing only on wear and tear, and ignoring altogether whether the useful life of the property is determinable, the majority has identified, and allowed a deduction for, a class of property that contains property for which no deduction is allowable under section 167: viz, property with an indeterminable useful life. Section 168 indicates plainly enough that Congress wished to eliminate some disputes over useful life. Nothing indicates, however, that Congress intended to allow a deduction for property of a type that, previously, had been nondepreciable on account of the taxpayer’s inability to establish a useful life. Section 168 (as here in issue) was added to the Code by section 201(a) of the Economic Recovery Tax Act of 1981 (ERTA), Pub. L. 97-34, 95 Stat. 172, 203. H. Conf. Rept. 97-215 (1981), 1981-2 C.B. 481, accompanied the conference agreement with respect to H.R. 4242, 97th Cong., 1st Sess. (1981), which was enacted as ERTA. The portion of the Joint Explanatory Statement of the Committee of Conference relevant to section 201(a) of erta contains the following:
House bill. — Under present law, assets used in a trade or business or for the production of income are depreciable if they are subject to wear and tear, decay or decline from natural causes or obsolescence. Assets that do not decline in value on a predictable basis or that do not have a determinable useful life, such as land, goodwill, and stock are not depreciable.
Under the House bill, most tangible depreciable property (real and personal) is covered by the accelerated cost recovery system (ACRS). However, ACRS does not apply to (1) property not depreciated in terms of years * * *, and (2) property amortized * * *.
[Emphasis added.]
H. Conf. Rept. 97-215, supra, 1981-2 C.B. at 487. It is difficult, if not impossible, to read that language in light of the conference agreement and believe that the conferees intended property with an indeterminable useful life to be eligible for ACRS.
Difficulties Faced by the Majority
The majority’s interpretation presents it with clear difficulties. The majority acknowledges that “works of art” remain nondepreciable, and, thus, outside of section 168. Majority op. p. 294. Traditionally, of course, that is because works of art generally lack a determinable useful life. See, e.g., Clinger v. Commissioner, T.C. Memo. 1990-459 (petitioner failed to establish that painting had determinable useful life); Rev. Rul. 68-232, 1968-1 C.B. 79. The majority, however, distinguishes nondepreciable works of art on the ground that they are not used “actively, regularly, and routinely” to produce income in a trade or business. Majority op. p. 294. The statutory source of that test is unidentified. Perhaps the majority is simply indulging in the presumption that, for want of active, regular, and routine use, works of art have an indefinite useful life. If so, then I fail to see why useful life (i.e., the determinability thereof) is not a question of fact here to be proven by petitioners.
Not a Clean Slate
Congress did not write on a clean slate when it added section 168 to the Code. The slate already contained section 167, which, with respect to the aspect at issue, Congress left unmodified. In effect, Congress added section 168 on top of section 167. If active, regular, and routine use are to replace determinable useful life as the touchstone for depreciability, then I believe that the majority has opened a loophole that it is inconceivable Congress intended. What is to stop wealthy taxpayers from stuffing (indeed, overstuffing) their offices with valuable antique furniture that they may write off over the 7-year recovery period now applicable to office furniture? In Noyce v. Commissioner, 97 T.C. 670, 688 (1991), we rejected the notion that depreciation deductions must be reasonable in amount. Now, as long as the property is regularly (and actively) used for business purposes, we decide to turn a blind eye to its utility as a (valuable) collectible. It seems to me that we — and not Congress — have declared a field day for purveyors of fine antique furniture and other dual-purpose collectibles. It is our job to interpret the statutes as Congress wrote them and not to interpret them as if we had written them. The latter is what I fear the majority has done, and I cannot join that effort. For that reason, I dissent.
Hamblen, Chabot, Jacobs, and Whalen, JJ., agree with this dissent.See S. Rept. 97-144 (1981), 1981-2 C.B. 412, 421, 425 (property eligible for ACRS defined in terms of property eligible for depreciation); H. Conf. Rept. 97-215 (1981) (conference report), 1981-2 C.B. 481, 487 (similar).