Case Analysis: The Depreciating Properties of the Property

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Table of Contents

Introduction
Discussion
Conclusion
References

Introduction

Collecting expensive works of art can be part of many organizations’ practices and impact their business. When purchasing expensive works of art, Timothy Couch believes that it is a sound purchase because of the depreciating properties of the property. Coach justified the purchase of these works of art because

they are an excellent investment and should increase in value in the future,
they provide a relevant and impressive office, and
the works of art are depreciable assets and the corporation will be able to write off significant amounts against income (Foth, 2022).

However, there is a question as to whether the artwork is a depreciable property.

Discussion

Revenue ruling 68-232: C.B. 70 (1968) is the main rule regarding the value of works of art. It establishes that they cannot be subject to fixed limits on the duration of their value. On this basis, works of art do not have depreciative properties (Internal Revenue Service, 1983). Consequently, according to this source, Timothy Couch’s rationale is invalid. The purchase of artwork does not carry a definite term of use but is determined by the buyer’s internal desire.

Supreme Court Case Shauna C. Clinger (1990) is an additional source to support the unreasonable purchase of valuable works of art. According to the case, the jewelry purchase was for the educational benefit of an art studio student (United States Tax Court, 1990). The Appellant believed he was entitled to a depreciation deduction, but the court ruled that there was no reason to believe there was a valuable life for the jewelry. Consequently, they do not have depreciable properties, and the same configuration applies to Timothy Couch’s case.

Simon v. Commissioner of Internal Revenue (1994) is a case about the depreciation properties of string instruments. According to the court, violinists are entitled to claim depreciation deductions because violins are subject to depreciation due to frequent wear and tear (United States Tax Court, 1994b). This means that under paragraph 168 of the Internal Revenue Code, art objects can qualify for depreciation properties if there is a nonprofit value for depreciation purposes. Concerning the case under study, the following can be established: paintings do not have the parameter of frequent depreciation. Based on this, it must be concluded that depreciation deductions are unavailable to Coach and his company.

Liddle v. Commissioner of Internal Revenue is a case that further reveals the relationship between tax deductions and musical instruments. According to the court, instrument wear and tear is due to common causes that do not result in the loss of usefulness or value of the instruments (United States Tax Court, 1994a). The petitioner, in this case, has used the instrument regularly over time, and the value of the cello has not diminished. An increase in the economic value of the instrument is not a basis that proves a loss of utility of the instrument as a whole. Consequently, applying this decision to the Couch case, we can bet that the artwork purchase is also not covered by depreciation deductions.

Conclusion

Thus, based on the analyzed court decisions, it can be ruled that Timothy Couch’s purchase of works of art is not subject to depreciation deductions. First, the paintings have a flexible time frame of value. Second, the paintings do not have depreciable properties because they do not directly result in income. Third, works of art are not covered by depreciation deductions because the paintings do not have frequent depreciation because of their properties, not the buyer’s treatment.

References

Foth, E. (2022). Federal taxation: Comprehensive topics (2023). CCH Inc.

Internal Revenue Service. (1983). Revenue ruling 68-232: C.B. 70. In Revision of IRS tax deductions for the arts (p. 232). U.S. Government Printing Office.

United States Tax Court. (1990). W. Cordell Clinger and Shauna C. Clinger v. Commissioner. Web.

United States Tax Court. (1994a). Brian P. Liddle and Brenda H. Liddle, Petitioners V. Commissioner of internal revenue, respondent. Web.

United States Tax Court. (1994b). Richard L. Simon and Fiona Simon, petitioners V. Commissioner of internal revenue, respondent. Web.

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Case Analysis: The Depreciating Properties of the Property

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