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route. Under its method, Qwest’s tax basis per conduit
mile in each of its three conduits is $6,967 (including
capitalized interest). MCI, on the other hand, paid
Qwest approximately $32 million for its one conduit
that covered 761 miles * * *. So MCI’s tax basis per
mile in the identical asset is $41,694. This is six
times Qwest’s basis for the identical asset.
* * * * * * *
This huge disparity in tax basis of identical
assets between Qwest’s assets and those of its
customers results in Qwest having an enormous
competitive advantage in the industry. With this
situation, Qwest is in a position to either price its
services lower than its competitors, to the
competitors’ detriment, or to reap a much higher
percentage profit than its competitors for providing
identical services. * * * such a situation violates the
basic principle of taxpayer parity as espoused by the
Supreme Court in Idaho Power and is a powerful
indication of the unreasonableness of Qwest’s
incremental method * * * .
Idaho Power Co. v. Commissioner, supra, does not stand for the
proposition that taxpayers’ bases in identical property should be
the same, nor does it stand for the elimination of the
competitive advantage a taxpayer may have by constructing its own
capital assets.
The principle of taxpayer parity found in Idaho Power Co. v.
Commissioner, supra, is not the same as competitive equality.
Qwest’s competitive advantage did not arise from the use of its
incremental cost allocation method, but was a function of its
business model and of the resources it had available. We find
that Qwest’s incremental cost allocation method does not violate
the principle of taxpayer parity.
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