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C. Taxpayer Parity
Respondent argues that Qwest’s incremental cost allocation
method is unreasonable because it violates the principles of
taxpayer parity as required by the Supreme Court in Idaho Power
Co. v. Commissioner, 418 U.S. 1 (1974). Respondent states:
Because Qwest is simultaneously constructing identical
assets for itself and for customers, Qwest’s
incremental method must also satisfy the * * * taxpayer
parity standards set forth in Idaho Power. By failing
to do so, Qwest’s incremental method results in an
unfair competitive advantage for Qwest compared to its
competitors, a result contrary to the guidance of Idaho
Power.
Respondent misinterprets Idaho Power Co., and thus the argument
is unpersuasive.
In Idaho Power Co. v. Commissioner, supra, the taxpayer
capitalized depreciable operating and maintenance costs of
transportation equipment used in constructing its capital
facilities on its books, but for Federal income tax purposes, it
claimed the depreciation as current expense deductions under
section 167(a). Id. at 5-6. The Commissioner disallowed the
construction-related depreciation deduction, determining that
depreciation was in that context a nondeductible capital
expenditure to which section 263(a)(1) applied. Id. at 6. The
Supreme Court upheld the Commissioner’s determination, and
emphasized the importance of matching income with expenses by
capitalizing costs incurred in the construction of capital assets
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