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c. Rev. Proc. 87-56
(1) Intra-Industry Asset Classes
The focus of the Court of Appeals on industry usage of
gathering pipelines also ignores the fact that Rev. Proc. 87-56,
1987-2 C.B. 674, does not provide one asset guideline class for
the whole “gas industry”. Rather, several classifications apply
to the industry, each designed to encompass a segment of the
industry, including “Offshore Drilling” (13.0), “Drilling of Oil
and Gas Wells” (13.1), “Exploration for and Production of
Petroleum and Natural Gas Deposits” (13.2), “Pipeline
Transportation” (46.0), “Natural Gas Production Plant” (49.23),
“Gas Utility Trunk Pipelines and Related Storage Facilities”
(49.24), and “Liquefied Natural Gas Plant” (49.25).
That segmented approach to the oil and gas industry is
entirely consistent with the statutory scheme. Under former
section 167(m)(1), the depreciation allowance for property
12(...continued)
guideline class. Thus, Judge Foley’s interpretation of the third
sentence of section 1.167(a)-11(b)(4)(iii)(b), Income Tax Regs.,
as referencing the insubstantiality of anyone’s primary use of
property in relation to all of the taxpayer’s activities is not
sustainable. Moreover, we note that, had Clajon leased rather
than owned its gathering systems, the lessor would have been
required by the regulations to treat Clajon’s (not the
producers’) primary use of such systems as controlling the
determination of the proper asset guideline class. There is no
conceivable basis for interpreting section 1.167(a)-
11(b)(4)(iii)(b), Income Tax Regs., as treating the producer’s
primary use as controlling where the pipeline company owns rather
than leases its gathering systems.
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