Duke Energy Natural Gas Corporation - Page 1

                                   109 T.C. No.19                                     

                               UNITED STATES TAX COURT                                

                 DUKE ENERGY NATURAL GAS CORPORATION, Petitioner v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No.  12720-96.             Filed December 16, 1997.             

                    P owns and operates various systems of                            
               interconnected subterranean natural gas gathering                      
               pipelines and related compression facilities (the                      
               gathering systems).  P argues that the modified                        
               accelerated cost recovery system allows P to depreciate                
               the gathering systems over 7 years because P is a                      
               producer of natural gas within the meaning of Class                    
               13.2 of Rev. Proc. 87-56, 1987-2 C.B. 674.  R argues                   
               that P must depreciate the gathering systems over 15                   
               years because P transports gas, which brings P within                  
               Class 46.0 of Rev. Proc. 87-56, supra.                                 
                    Held:  P transports, and does not produce, gas;                   
               thus, P must depreciate the gathering systems over 15                  

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