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Also, in setting transportation rates for TAPS and other
pipelines on the North Slope, the Federal Energy Regulatory
Commission (FERC) has permitted owners of the pipelines to treat
estimated DRR costs as capital costs of constructing the
pipelines and therefore as costs that are recoverable ratably
over the life of the pipelines through rate charges for
transporting oil through TAPS and the other pipelines.
PBU Financial Statements and PBU Tax Reporting Relating to
Estimated DRR Costs at Prudhoe Bay
For all relevant years and all items (including DRR costs),
the financial books and records and the Federal partnership
income tax returns of the PBU were prepared on the accrual method
of accounting.
From formation of the PBU partnership through the years in
issue, on the financial books and records and on the Federal
income tax returns of the PBU partnership, DRR costs were accrued
utilizing the all-events test of the accrual method of
accounting. At the time, it was understood generally within the
oil industry that DRR costs could not be accrued for Federal
income tax purposes until the related DRR work was actually
performed. This understanding was consistent with and followed
respondent’s then-published position that DRR work had to be
performed before the related DRR costs for tax purposes could be
accrued under the all-events test. See Rev. Rul. 80-182, 1980-2
C.B. 167.
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