Rev. Rul. 58-306

Advice has been requested whether `work sheets' used by a taxpayer may be considered as fulfilling the requirement of the regulations that permanent auxiliary records be maintained for reconciling differences in depreciation reserves maintained for tax and book purposes.

Section 167 of the Internal Revenue Code of 1954 provides that there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) of (1) property used in the trade or businees, or (2) property held for the production of income.

Section 1.167(a)-7(c) of the Income Tax Regulations provides that if reserves for book purposes do not correspond with reserves maintained for tax purposes, permanent auxiliary records shall be maintained with the regular books of account reconciling the differences in depreciation for tax and book purposes because of different methods of depreciation, bases, rates, salvage, or other factors.

Section 6001 of the Code also requires that every person liable for any tax, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary of the Treasury or his delegate may from time to time prescribe. Whenever the Secretary or his delegate deems it necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary or his delegate deems sufficient to show whether or not such person is liable for tax.

Certain taxpayers using the `fast write-off' methods provided by the 1954 Code for claiming depreciation for tax purposes have not been maintaining the permanent auxiliary records required to be maintained as indicated by the above cited section of the regulations. However, most of them are able to present `work sheets' from which their book depreciation may be reconciled with their reported tax depreciation. In some cases, these `work sheets' are kept in the same office as the other books of accounts, while in other cases they are prepared and maintained by independent accountants in the office of the accountant.

Where a taxpayer maintains only `work sheets' from which the difference in depreciation for book and tax purposes may be reconciled, the Internal Revenue Service holds that there has been a failure to comply with the requirements of the regulations and with section 6001 of the Code. Accordingly, the taxpayer is required to keep such auxiliary records as are permanent in nature, are maintained with the regular books of account, and in themselves reconcile the difference in depreciation for book and tax purposes.