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producers connected to the TGS needed a gathering system to
further the production process by removing impurities and
delivering their gas to processing facilities. Indeed, all of
the producers connected to the TGS had contractual agreements to,
and did in fact, “use” Clajon’s gathering systems. Even in
contracts where title passed to Clajon, the gathering system
remained the means by which the producers’ gas ultimately
traveled to the gas processing plant and transmission lines.
Contrary to the majority’s holding, the primary use of the TGS
was the same regardless of who owned the systems or the gas
flowing through the systems.
The majority base their holding on the theory that the
availability of all asset classes depends on the primary use of
the taxpayer rather than the primary use of the asset. This is,
essentially, an ownership requirement. Such a theory is
inconsistent with the law. Section 1.167(a)-11(b)(4)(iii)(b),
Income Tax Regs., states that “Property shall be classified
according to primary use even though the activity in which such
property is primarily used is insubstantial in relation to all
the taxpayer’s activities.” This regulation unequivocally states
that, regardless of the taxpayer’s activities, the primary use of
the asset determines the appropriate asset class for purposes of
depreciation.
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