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provide cable television service to the residents of the City of
Livonia is not sufficient to establish that they were "necessary
to carry out" the agreement.11
As indicated supra in footnote 9, the same uncertainties,
which are the result of petitioner’s failure to document the
items of the subject property actually placed in service during
the audit years, raise material issues of fact whether such
property is "readily identifiable with" the Livonia Franchise
Agreement.
10 (...continued)
Agreement.
Even in the absence of a state-of-the-art requirement,
however, it is possible that an upgrade might qualify for
transition ITC, e.g., where a broken part in need of replacement
is obsolete and no longer in production. Thus, if the channel
capacity increase from 60 to 62 channels acknowledged by
Mr. Bjorklund truly was "incidental" to an otherwise required use
of upgraded models of equipment described in the pre-1986
documents (e.g., where the upgrade was the only model readily
available for use at the time of installation) it may be that the
upgrade was "necessary to carry out" the franchise agreement.
11 In this case, the issue is whether the equipment used to
carry out contractually required service obligations was
"necessary to carry out" such obligations. In Southern Multi-
Media Communications, Inc. v. Commissioner, supra, it was the
contractual need to perform the service obligations themselves
(i.e., the rebuilds and line extensions) that was in issue.
Because we held that the service obligations were not "necessary
to carry out" the franchise agreement, it followed that none of
the equipment could qualify for transition ITC. In this case,
because the service obligations are required by the franchise
agreement, we must determine, after a trial, which specific items
of equipment were "necessary to carry out" those obligations and
which were not. Therefore, the two cases involve somewhat
different applications of the principle that there must exist a
"specific contractual commitment" for equipment placed in service
if such equipment is to qualify for transition ITC.
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