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included in two or more asset guideline classes, each with its
own (different) class life.5 Gathering pipelines are subject to
depreciation by both natural gas producers (under 13.2) and
pipeline companies (under 46.0).
IV. Duke Energy
In Duke Energy Natural Gas Corp. v. Commissioner, 109 T.C.
at 421, we concluded that the taxpayer’s gathering systems were
“used primarily by a pipeline company [the taxpayer] to carry gas
to a production facility, which * * * brings them within asset
class 46.0.” In reaching that conclusion, we rejected the
taxpayer’s argument “that its gathering systems are included in
asset class 13.2 because the systems are used by petroleum and
natural gas producers to produce natural gas in that the systems
are essential to the production and sale of gas in the market.”
Id. We noted: “The mere fact that the gathering systems may
5 For example, Rev. Proc. 87-56, 1987-2 C.B. 674, provides
that “assets used in the drilling of onshore oil and gas wells”
are generally includable within Asset Class 13.1, which has a
6-year class life and a 5-year recovery period. Asset Class 13.1
specifically excludes “assets used in the performance of any of
these activities * * * by integrated petroleum and natural gas
producers for their own account”. Asset Class 13.2, on the other
hand, which specifically pertains to “assets used by petroleum
and natural gas producers for drilling of wells and production of
petroleum and natural gas” has a 14-year class life and a 7-year
recovery period. An onshore oil drilling rig, therefore, has a
shorter class life and recovery period if owned and used by a
person whose sole activity is well drilling than it would have if
owned and used by an integrated oil and gas producer.
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