## Facts

- Richard L. Simon and Fiona Simon were professional violinists performing full-time with the New York Philharmonic.
- In 1985, they purchased two 19th-century François Tourte violin bows in largely unused condition for use in their performance work.
- Regular professional use caused physical wear, diminishing performance qualities over time; a bow could eventually become “played out.”
- The bows’ fair market value as antiques increased during the relevant period.
- On their 1989 return, the Simons claimed ACRS depreciation deductions under I.R.C. § 168 for the two bows.
- The Commissioner issued a deficiency notice, asserting the bows were not depreciable because they lacked a determinable useful life and had appreciated.
- The Tax Court held the bows were depreciable “recovery property” under § 168 and sustained the deductions.
- The Commissioner appealed to the Second Circuit.

## Issues

1. Whether tangible business property is depreciable under ACRS (I.R.C. § 168) only if the taxpayer can prove the property has a determinable useful life.
2. Whether market appreciation of an asset used in a trade or business bars ACRS depreciation when the asset is subject to wear and tear.

## Decision

- The Second Circuit affirmed the Tax Court.
- The court held the antique bows qualified as depreciable “recovery property” under § 168 because they were tangible property used in the taxpayers’ trade or business and were subject to wear and tear.
- The court rejected the Commissioner’s argument that § 168 incorporates a separate determinable-useful-life requirement derived from pre-ERTA depreciation doctrine.
- The court held that appreciation in fair market value did not preclude depreciation deductions based on physical deterioration from business use.
- Judge Oakes dissented, reading § 168’s “of a character subject to the allowance for depreciation” language to incorporate the traditional determinable useful life requirement.

## Legal Principles

- Under ACRS, § 168’s definition of “recovery property” does not impose an independent requirement that taxpayers prove a determinable useful life for the specific asset.
- “Tangible property of a character subject to the allowance for depreciation” in § 168 refers to property that is, by its nature and business use, subject to wear and tear, not to item-specific proof of life expectancy.
- Depreciation deductions under ACRS are directed to allocating the cost of using income-producing property over statutory recovery periods, not to tracking changes in fair market value.
- An asset’s appreciation as a collectible does not bar depreciation if the asset is used in a trade or business and suffers physical exhaustion, wear, or obsolescence from that use.

## Conclusion

The Second Circuit upheld ACRS depreciation for antique violin bows used by professional musicians, holding that § 168 allows depreciation for tangible business-use property subject to wear and tear even without proof of a determinable useful life and even if the property appreciates in market value.


Simon v. Comm’r, 68 F.3d 41 (2d Cir. 1995)