Depreciation

Because the IRS code defines depreciation as a "reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)", it would be unreasonable to denominate the allowance in any other than current years dollars.

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A piece of wood that twenty years ago cost one dollar, today, might cost three dollars.

Certainly, if we were to replace the piece of wood today, it would require three pieces of green paper (dollars), and the IRS would expect us to deduct three dollars.

If we were to make an allowance for depreciating the piece of wood we would base the allowance on three dollars, not one 1970 dollar.

Though the depreciation schedule might be denominated in other than current years dollars, a conversion must occur to current dollars for the deduction to be reasonable.

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Paradox

Following the IRS's method we would base our current depreciation deduction on one 1970's dollar.

If we follow this reasoning to its logical conclusion and sold a piece of wood today for three dollars, that was purchased for one dollar in the 1970's, the sale price we would report on our tax return would be one dollar. This is clearly contrary to current IRS interpretation.