Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 21

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          state that only the taxpayer’s activities are relevant.  We                 
          conclude, however, that, because such limitation is contained in            
          the regulations pursuant to which Rev. Proc. 87-56, supra, was              
          issued, it is implicit in all activity-based classifications,               
          including 13.2 and 46.0.  We must, therefore, look to such                  
          classifications to see which describes petitioner’s activities.12           

          activity in which property is used.                                         
               12  The dissenters assume that, as described by Judge Foley,           
          the “central issue” in this case is whether Clajon’s gathering              
          pipelines were “used by * * * producers for * * * production of *           
          * * natural gas”.  Judge Foley, finding no ambiguity in the verb            
          “to use”, criticizes us for failing to be governed by the “plain            
          language” of 13.2.  The dissenters ignore the fact that a similar           
          criticism could be leveled against them, since the plain language           
          of 46.0, which includes “assets used in * * * carrying * * * gas”           
          (emphasis added), unambiguously includes Clajon’s pipelines.                
          Assuming, arguendo, that the producers use Clajon’s pipelines               
          (rather than simply benefit from Clajon’s own use of its                    
          pipelines), the “central issue” is which use –- the producers’ or           
          Clajon’s –- controls the determination of the proper recovery               
          period.  The proper inquiry is not whether 13.2 is or is not                
          ambiguous but, rather, whether 13.2 is applicable at all.                   
               The dissenters’ reliance on the plain language of 13.2 to              
          support their analysis is also undercut by their ultimate                   
          reliance not on the plain language of 13.2 but on the                       
          regulations, which clarify that the primary use of property                 
          controls its classification under Rev. Proc. 87-56.  Moreover,              
          the dissenters fail to reconcile their plain language analysis              
          with the special rule for leased property found in section                  
          1.167(a)-11(e)(3)(iii), Income Tax Regs.  That rule, which, in              
          effect, looks to the lessee’s primary use of property in                    
          determining its proper asset guideline class, necessarily implies           
          that, under the general rule applicable to nonleased property               
          (i.e., under the first sentence of section 1.167(a)-                        
          11(b)(4)(iii)(b), Income Tax Regs.), it is the owner-taxpayer’s             
          primary use of property that determines its proper asset                    

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