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December 31, 1985, and January 1, 1991, within the supply or
service transition rule.
Although this Court has not yet interpreted the supply or
service transition rule, three other Federal courts have. In
Bell Atl. Corp. v. United States, 82 AFTR 2d 98-7375, at 98-7379,
99-1 USTC par. 50,119, at 87,037 (E.D. Pa. 1998), the taxpayer
argued that because franchise agreements outstanding as of
December 31, 1985, required that it broadly “maintain, expand,
and improve their telephone networks” to meet industry standards,
property purchased after December 31, 1985, to upgrade telephone
network equipment satisfied the supply or service transition
rule. The Federal District Court for the Eastern District of
Pennsylvania, however, concluded that none of the property was
necessary to carry out any of the taxpayer's franchise
agreements. The court stated that the general language of the
franchise agreements involved in that case was not sufficient to
qualify under the supply or service transition rule.
In United States v. Zeigler Coal Holding Co., 934 F. Supp.
292, 295 (S.D. Ill. 1996), the Federal District Court for the
Southern District of Illinois, in denying summary judgment,
stated that “in order to be eligible * * * [under the supply or
service transition rule] the property must have been specifically
described.” The court noted that it could not find language in
the taxpayer's relevant contracts as they existed as of
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