Rev. Proc. 79-60

Section 1. Purpose.

The purpose of this revenue procedure is to modify section 2.02(i) of Rev. Proc. 77-10, 1977-1 C.B. 548, which provides a special rule of application regarding certain asset guideline classes and subclasses of Class Life Asset Depreciation Range (CLADR) system.

Section 2. Background.

.01 Section 1.167(a)-11(b)(4)(ii) of the Income Tax Regulations provides that when asset guideline periods or the lower limit of the asset depreciation range are supplemented or revised, the asset guideline period or lower limit of the asset depreciation range shall not be longer for any vintage account than that in effect for the first day of the taxable year.

.02 If a new class is established by combining a class with long-lived assets and a subclass with short-lived assets, the asset depreciation range of the new class is determined by weighting the lives of all the assets. If a taxpayer were able to exclude all the short-lived assets from the new class, the lives of the remaining assets would not reflect the asset depreciation range of the new class.

Section 3. Change.

Section 2.02(i) of Rev. Proc. 77-10 is modified to read as follows:

"It is expressly provided that asset guideline classes and subclasses 00.4, 20.5, 30.11, 30.21, 32.11, 33.11, 33.21, 34.01, 35.11, 35.21, 36.11, 37.12, 37.32, 37.33, and 49.121 are part of existing activity classes to which the assets included in them relate as stated in the revenue procedures establishing these subclasses; therefore, assets included in these classes and subclasses are not separately subject to possible exclusion from an election to apply sections 1.167(a)-11(b)(4)(ii) and 1.167(a)-11(b)(5)(v) of the Income Tax Regulations."

Section 4. Application.

The following examples set forth the application of the revision of section 2.02(i) of Rev. Proc. 77-10:

Example 1

During 1979, class Y (asset depreciation range, 11-17 years) and subclass Y.1 (asset depreciation range, 4-6 years) are established effective for assets placed in service in taxable years ending after the date of publication of the revenue procedure establishing classes Y and Y.1. The assets in class Y and subclass Y.1 formerly were included in class X (asset depreciation range, 8-12 years). For the first taxable year ending after the date of publication of the revenue procedure establishing classes Y and Y.1, a taxpayer has the option of using (1) class X or (2) class Y and subclass Y.1. The taxpayer may not use subclass Y.1 for the assets described in that subclass and class X for the remaining assets.

Example 2

During 1979, class Z (asset depreciation range, 16-24 years) is established effective for assets placed in service in taxable years ending after the date of publication of the revenue procedure establishing class Z. The assets in this class formerly were included in class W (asset depreciation range, 22-34 years), and subclass W.1 (asset depreciation range, 4-6 years). For the first taxable year ending after the date of publication of the revenue procedure establishing class Z, a taxpayer has the option of using (1) class W and subclass W.1 or (2) class Z. The taxpayer may not use subclass W.1 for the assets described in that subclass and class Z for the remaining assets.

Section 5. Effect on Other Documents.

Rev. Proc. 77-10, Section 2.02(i) is modified to the extent set forth in section 3 of this Revenue Procedure.

Section 6. Effective Date.

This Revenue Procedure is effective for property placed in service in taxable years ending after December 3, 1979, the date of publication of this Revenue Procedure in the Internal Revenue Bulletin.