Sprint Corporation and Subsidiaries, f.k.a. United Telecommunications, Inc. - Page 17

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          Transmission facilities consist of three distinct segments:                 
          (1) the main cable, either buried or aerial, (2) the wire (drop             
          wire) running from the distribution network to and including the            
          station protector (also known as the block) located on the                  
          outside wall of the customer's premises (together the “drop and             
          block”), and (3) the wire running from the station protector to             
          and around the inside of the customer's premises (the inside                
          wiring).                                                                    
               As a public utility, the telephone industry is regulated by            
          the Federal Communications Commission (FCC).  As part of its                
          regulatory function, the FCC prescribes the accounting treatment            
          of revenues earned and expenses incurred in the operation of a              
          telephone business.  The relevant rules are set forth in 47                 
          C.F.R. part 31 (part 31), Uniform System of Accounts for Class A            
          and Class B Telephone Companies.  During the years in issue, all            
          of petitioner's subsidiaries were telephone companies subject to            
          part 31 rules.                                                              
               As of January 1, 1981, part 31 specified that the investment           
          in drop and block be accounted for in FCC account No. 232                   
          (station connections).  As of January 1, 1981, and in accordance            
          with part 31, petitioner so accounted for its investment in drop            
          and block.  Beginning January 1, 1984, part 31 was changed and              
          specified that investment in drop and block be accumulated in FCC           
          account No. 242 (aerial and buried cable).  For income tax                  
          purposes, petitioner treated property in FCC account No. 232 as             




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