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“incurred by reason of” prong. The Court did not
address the “directly benefits” prong as required by
the regulatory test. Qwest’s Common Indirect Costs
plainly meet the “directly benefits” prong and should
have been allocated to Qwest’s section 263A retained
assets.
Before the motion, respondent never argued that the section 263A
regulations provided for a “direct benefits” test.5 Respondent’s
motion for reconsideration is not the appropriate forum to raise
a new legal theory and can be denied on that basis alone. See
id. Nevertheless, to explain why we conclude that respondent
misconstrues the regulations under section 263A and ignores the
regulations under section 460, we shall address respondent’s new
theory.
At issue in Anschutz I was Qwest’s allocation of indirect
costs, incurred when installing conduit or when pulling fiber,
between its retained assets and its long-term customer contracts.
Section 263A governed the cost allocations to its retained
assets, while section 460 governed the cost allocations to its
long-term customer contracts.6 We found that the regulations
under each section provided for two levels of allocation of
indirect costs, and only the first-level allocations were at
5 In his answering brief, respondent analyzed Qwest’s
incremental cost allocation method under both the clear
reflection of income standard and under the “reasonable
allocation” test. The Court addressed both in Anschutz I.
6 See Anschutz I for a detailed description of each
Internal Revenue Code section.
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Last modified: May 25, 2011