Duke Energy Natural Gas Corporation - Page 6

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          Respondent argues, alternatively, that, if the assets are not               
          within asset class 46.0, they are within asset class 00.3.  Asset           
          class 00.3 provides for a 15-year recovery period.                          
               We agree with respondent's primary position.  The Code lets            
          taxpayers deduct depreciation for the exhaustion, wear and tear,            
          or obsolescence of property used in a trade or business.  Sec.              
          167(a); see also Simon v. Commissioner, 103 T.C. 247 (1994),                
          affd. 68 F.3d 41 (2d Cir. 1995).  For tangible property, such a             
          deduction is computed by reference to the applicable depreciation           
          method, recovery period, and convention.  Sec. 168(a).  Under               
          MACRS, which generally applies to tangible property placed in               
          service after December 31, 1986, the recovery period depends on             
          the asset's class life, sec. 168(e), which, for purposes of this            
          case, is found by reference to Rev. Proc. 87-56, 1987-2 C.B. 674.           
          See sec. 168(i); see also sec. 167(m)(before repeal).  The                  
          classes at issue are as follows:                                            
                    Asset Class 00.3--Land Improvements:  Includes                    
               improvements directly to or added to land, whether such                
               improvements are section 1245 property or section 1250                 
               property, provided such improvements are depreciable.                  
               Examples of such assets might include sidewalks, roads,                
               canals, waterways, drainage facilities, sewers * * *.                  
               Does not include land improvements that are explicitly                 
               included in any other class * * *. * * *                               
                    Asset Class 13.2--Exploration for and Production                  
               of Petroleum and Natural Gas Deposits:  Includes assets                
               used by petroleum and natural gas producers for                        
               drilling of wells and production of petroleum and                      
               natural gas, including gathering pipelines and related                 
               storage facilities.  Also includes petroleum and                       
               natural gas offshore transportation facilities used by                 

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Last modified: May 25, 2011