- 24 -
are not allowable because they are capital
expenditures. Accordingly your income is increased by
$20,149,787, $10,977,427 and $14,602,442 for taxable
years ending 7-31-94, 7-31-95 and 7-31-96 respectively.
Using the MCI Denver-El Paso project as an example, respondent
allocated the project costs as follows:16
Total project costs $39,151,405
Less: direct costs allocated ( 1,279,689)
to customer
Project costs to allocate $37,871,716
Divide: total conduit miles / 3,056
Average cost per conduit mile $12,391
Multiply: customer conduit miles * 761
Costs allocated to customer $9,433,853
Add: direct costs allocated + 1,279,689
to customer
Project costs allocated $10,713,542
to customer
Total project costs $39,151,405
Less: project costs allocated (10,713,542)
to customer
Project Costs Allocated to Qwest $28,437,863
On April 24, 2003, petitioners filed a petition with this
Court disputing the determinations in the notice of deficiency.
As relevant, petitioners state:
The Commissioner * * * erred in failing to determine
that petitioners properly and reasonably allocated
costs between long-term contracts with customers for
the installation of conduit or fiber optic cable and
additional conduit or fiber optic cable retained by
petitioners in accordance with applicable Treasury
regulations, and in failing to determine that
16 We note that these calculations were provided by
respondent, and there appear to be mathematical errors. However,
because respondent relied on these calculations, we have left the
errors uncorrected.
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011