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Accordingly, for the years in issue, the PBU partnership
accrued ordinary business expense deductions relating to DRR
costs in the years in which the related DRR work was performed.
On the PBU partnership Federal income tax returns for the
years in issue (1979-82), with respect to estimated future
Prudhoe Bay DRR costs associated with projected DRR work to be
performed in subsequent years upon termination of oil production
at Prudhoe Bay, no accrual was claimed for an increase to a
capital liability account, for an increase in the depreciable tax
basis of capital assets at the Prudhoe Bay field, nor for
ordinary and necessary business expenses.
During the years in issue, a PBU-sponsored DRR cost study
relating to the Prudhoe Bay field was not completed.
On its 1979 and 1980 partnership Federal income tax returns,
the PBU elected to compute depreciation on its depreciable assets
placed in service in those years under the class life asset
depreciation range (ADR) system of section 1.167(a)-11, Income
Tax Regs. For those same years, PBU elected under section 167(f)
to reduce the amount taken into account as salvage value by an
amount not exceeding 10 percent of the basis of property
depreciated under the ADR system. In making this election, the
PBU claimed that the gross salvage value did not exceed 10
percent of the unadjusted basis of the facilities. This election
caused the salvage value of each ADR vintage account to be
reduced to zero. For 1981 and 1982, the PBU depreciated assets
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