Incorrect Depreciation and Recognized Gain

A staff accountant for a large international com-pany is calculating the tax gain from a disposition of business equipment. The equipment was seven-year MACRS property and has been fully depreciated for tax purposes. The staff accountant notices that the equipment was used in Germany, not the United States, although it is listed as an asset of the U.S. company for which the staff accountant works. Because the property was used outside the United States, it should have been depreciated using straight-line over a nine-year life. Con-sequently, the tax depreciation has been overstated, and the tax basis should be greater than zero, causing a smaller gain. What should the staff accountant do?

What dilemma is the staff accountant facing?

What procedures does tax law provide on how this issue must be dealt with and why?

What disclosure must the accountant provide to the tax client, if any?

How could this issue be prevented in the future?