Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 20

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          primarily used”, section 1.167(a)-11(b)(4)(iii)(b), Income Tax              
          Regs., cross-references paragraph (e)(3)(iii) “for [the] rule for           
          leased property”.  The referenced paragraph provides:  “In the              
          case of a lessor of property [claiming an allowance for                     
          depreciation of leased property], unless there is an asset                  
          guideline class in effect for lessors of such property, the asset           
          guideline class for such property shall be determined as if the             
          property were owned by the lessee.”  (Emphasis added.)  That                
          provision would be wholly unnecessary under the “industry usage”            
          rationale of the Court of Appeals in Duke Energy Natural Gas                
          Corp. v. Commissioner, supra.10  Moreover, the regulation                   
          drafter’s analogy to deemed ownership by the lessee strengthens             
          the presumption that, in general (outside the special case for              
          leased property), it is the taxpayer-owner’s use of property that           
          determines its proper classification.                                       
               It is true that, in the case of the activity-based                     
          classifications,11 Rev. Proc. 87-56, supra, does not specifically           

               10  Under that rationale, the fact that the property in                
          question is leased would have no bearing whatsoever on the                  
          determination of the asset guideline class for such property, for           
          it is of no consequence whether the lessor or lessee of property            
          is considered the owner if, as stated by the Court of Appeals for           
          the Tenth Circuit in Duke Energy Natural Gas Corp. v.                       
          Commissioner, supra at 1259, primary use of the property is                 
          unrelated to ownership.                                                     
               11  Some of the asset guideline classes set forth in Rev.              
          Proc. 87-56, 1987-2 C.B. 674, are based upon the type of property           
          (such as trucks or railroad cars) as distinguished from the                 

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