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block per return as filed was correct; petitioner is then
entitled to adjustments increasing depreciation for the companies
listed in the preceding paragraph for which drop and block was
treated as 15-year public utility property on petitioner's
Federal income tax returns as filed for 1984 and 1985.
Petitioner concedes that, if the drop and block placed in
service during the years in issue is properly classified by
reference to its post-December 31, 1983, inclusion in FCC account
No. 242 and CLADR Asset Guideline Class 48.14, then the
depreciation claimed by petitioner in its Federal income tax
returns for 1984 and 1985 with respect to such drop and block
would be reduced, with the result that taxable income would be
increased with respect to the companies which treated the drop
and block as 5-year property.
OPINION
I. Digital Switches
A. Introduction
Petitioner purchased central office equipment (COE or
digital switches) for use in its business of providing telephone
service. Petitioner claimed investment tax credits (ITC) and
depreciation deductions under the accelerated cost recovery
system (ACRS) with respect to the total cost of each digital
switch, which included the cost of the custom computer software
load (software load) necessary to make each switch operable. In
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