Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 22

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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                  

          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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