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the flush language of section 1.141-3(b)(7)(i), Income Tax Regs.,
which provides that “an arrangement that conveys priority rights
to the use or capacity of a facility generally results in private
business use.”
Petitioner argues that its contract with Company does not
fall into any of the categories of special legal entitlements
listed in section 1.141-3(b)(2) through (6), Income Tax Regs.
Further, petitioner contends that this contract is not comparable
to any of those arrangements for purposes of section 1.141-
3(b)(7)(i), Income Tax Regs., except output contracts. If the
arrangement is comparable to an output contract, then petitioner
argues that the output facility regulations should apply. We
agree with petitioner.
Company does not have any rights which involve, or are
comparable to, the ownership, leasing, or management of financed
property.20 Company’s arrangement provides only rights to
receive the wastewater that is disposed of through the pipeline.
The only arrangement, of those listed in the regulations, to
which we might conceivably view Company’s rights to be comparable
20Par. (b)(2) of sec. 1.141-3, Income Tax Regs., targets
ownership of financed property; par. (b)(3) targets leases of
financed property; par. (b)(4) targets management contracts for
services involving all, a portion of, or any function of, a
facility; par. (b)(6) targets research agreements provided the
nongovernmental sponsor of the research is treated as the lessee
or owner of the financed property for Federal income tax
purposes.
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