dissenting: The determinative question in this proceeding is the amount of depreciation allowable on petitioner’s plant assets for each of its fiscal years 1921 to 1923, inclusive, and 1927 to 1933, inclusive. In arriving at the depreciated or unrecovered cost of the plant as a basis for depreciation allowances in the taxable years before us, respondent determined the allowable depreciation for each of such years designated in the preceding sentence on the basis of a useful life of 20 years from June 1, 1920. Petitioner contends that the allowable depreciation for each of such designated years is determinable on the basis of a useful life of 33 years from June 1,1920. The burden of proof is on petitioner to show (1) that respondent’s determination is incorrect and (2) that at the end of each of such fiscal years the fact was reasonably known, or was reasonably ascertainable in the light of conditions then existing, that the useful life of the plant assets was 33 years from June 1, 1920. Forrester Box Co. v. Commissioner, 123 Fed. (2d) 225. The Court’s holding herein is justifiable only on the theory that the petitioner has met its burden of proof. I think it has not done so.
From the facts of record it appears that petitioner’s plant had a depreciated or unrecovered cost basis of $186,103.56 at May 31, 1920. Fon the fiscal years 1921,1922, and 1923, no deduction for depreciation was claimed by petitioner in its income tax returns. In those years plus the year 1924 additions were made to the plant in the total amount of $38,408.55, thus making an adjusted plant cost basis of $224,572.11 before depreciation allowances for those years. For 1924 petitioner claimed and was allowed a deduction for depreciation of $35,727.27. Additions and replacements in 1925 totaled $4,209.13. For that year petitioner claimed and was allowed a deduction for depreciation of $35,782.78. In 1926 additions were made to the plant in the total amount of $10,324.19. For that year petitioner claimed and was allowed a deduction for depreciation of $38,013.82. A computation on the basis of the figures given shows that the depreciation claimed and allowed for the year 1924 was on the basis of an estimated useful life of the plant of a little less than 6 years from June 1,1920, and for the years 1925 and 1926 such computation shows that depreciation was claimed and allowed on a basis of an estimated useful life of the plant somewhat in excess of 6 years but less than 7 years from June 1,1920. No deductions for depreciation were claimed by petitioner in its tax returns for the fiscal years 1927 to 1933, inclusive, but additions and replacements for those years plus the year 1934 totaled $44,201.73. For the year 1934 petitioner claimed in its tax return a deduction of $12,628.23 for depreciation. Respondent adjusted the amount of such deduction to $10,254.96, using as a basis of depreciation for such year an estimated useful plant life of 20 years from June 1,1920. Respondent made an adjustment on the same basis of tire depreciation claimed for tire year 1935. Petitioner accepted the adjustments so made on the estimated 20-year life basis and also claimed and was allowed on its income tax returns for the years 1936, 1937, and 1938 deductions for depreciation on the same estimated useful life basis. Furthermore, petitioner in its tax returns for the taxable years before us, namely, 1939, 1940, and 1941, claimed deductions for depreciation on the basis of a 20-year useful life from June 1,1920. In respect of the last 3 years named respondent determined that the plant assets had a useful life of 15 years from July 1,1938, and adjusted accordingly the deduction for depreciation claimed for those years. Petitioner acquiesces in respondent’s determination that from July 1, 1938, its plant had a useful life of 15 years, but contends, contrary to the determination of respondent, that the determination of the unrecovered cost of its plant at the beginning of its taxable year 1939 should be made on the basis of a useful plant life of 33 instead of 20 years from June 1, 1920, in respect of each of the years for which no depreciation was claimed.
The fact that the parties agree that the plant had a useful life of 15 years beginning with the taxable year 1939 does not establish that it was known or that it was reasonably ascertainable prior to that time in the light of conditions then existing that the useful life of the plant was in excess of 20 years. Revised estimates of the life of depreciable property are not uncommon in the light of conditions revealed by the lapse of time and observation of the wearing effects of operation, but such revisions do not disturb the bases for depreciation on prior estimates made in conformity with conditions existing at the time such prior estimates are made. The majority, in support of its conclusion, says: “There is no suggestion whatsoever that the nature and character of petitioner’s business have undergone a change or that the use to which the assets in question are put is not the same as in prior years.” That statement establishes no fact, but merely recognizes the absence of a described fact. The absence of such fact does not relieve petitioner of its burden of proof to show that at the end of each of the tax years for which no depreciation was claimed it was known, or was reasonably ascertainable in the light of conditions then existing, that the useful life of the plant was 83 years from June 1, 1920. There is no evidence in the record on this point.
The Treasury regulations require that the amount of allowable depreciation in a given tax year be determined upon the basis of the reasonably known fact of the useful life of the property involved in the light of conditions existing at the end of such year. Secs. 19.23 (l)-5 and 19.113 (b) (1) —1, Regulations 103.
The foregoing is, in my opinion, sufficient to show that petitioner has not made its case, but the following considerations tend to fortify this conclusion. It appears that as to the years 1924, 1925, and 1926 the petitioner, which presumably was in a position to know the condition of its plant assets, claimed depreciation on the basis of an estimated life of approximately 6 years for the plant from June 1, 1920. It is hardly to be assumed that the condition of the plant as of the end of each of those years indicated a different term of useful life from June 1,1920, from that indicated as of the end of the years 1921,1922, and 1923. The next affirmative act by the parties hereto in respect of the amount of allowable depreciation was in connection with the claims made therefor in the petitioner’s 1934 and 1935 tax returns. Petitioner claimed as to 1934 depreciation based on a useful life of less than 20 years and this claim was adjusted by respondent on the basis of a 20-year useful life. As indicated hereinabove petitioner not only did not protest this adjustment, but he acquiesced therein, and in all of its subsequent tax returns up to and including the year 1941 he affirmatively adopted the 20-year life term from June 1,1920, and claimed depreciation on that basis. Since the petitioner, in all the years in which it claimed depreciation up to the year 1934, based such claim on a useful life of the plant assets of less than 20 years and beginning with the year 1934 acquiesced in and claimed depreciation on the basis of a 20-year useful life through 1941 and was allowed depreciation on that basis for the years 1934 through 1938, the correct conclusion appears to be, in the absence of proof to the contrary, that as of the end of each of the years in which no depreciation was claimed the fact reasonably known or reasonably ascertainable under the conditions then existing was that the useful life of the plant assets did not exceed 20 years from June 1,1920.
Petitioner’s estimate of the useful life of its plant as indicated by its claims for depreciation for years closely following the years for which no depreciation was claimed should be accorded evidentiary significance indicating petitioner’s practical judgment as to the useful life of its plant formed during the period of the latter group of years.
In United States v. Farrell, 35 Fed. (2d) 38, the court said:
Of course, it is true that the amount claimed by the corporation by way of depreciation is not necessarily the amount at which it should have been determined ; but it seems to me that such a claim, set forth in a tax return as an alleged fact, verified under the oath of the corporate officers, has at least the evidentiary value of an admission against interest. It does not conclude the taxpayer, but it certainly does constitute evidence against him.
See also Hilty Lumber Co. v. United. States, 3 Fed. Supp. 657.
Black and Leech, JJagree with this dissent.