District court disagrees on depreciation recovery period for gathering system.

• Jurisdiction: United States
• Author: Kautter, David J.
• Date: 01 January 2002

In Saginaw Bay Pipeline Co., DC MI, 8/23/01, a district court held that an appropriate modified accelerated cost recovery system (MACRS) recovery period for a taxpayer's "gathering pipelines" is 15 years.

Background

Under asset class 13.2 (Exploration for and Production of Petroleum and Natural Gas Deposits) of Rev. Proc. 87-56, "assets used by petroleum and natural gas producers for drilling of wells and production of petroleum and natural gas, including gathering pipelines and related storage facilities" have a seven-year MACRS recovery period. Alternatively, "assets used in the private, commercial, and contract carrying of petroleum, gas and other products by means of pipes and conveyors" fit within asset class 46.0 (Pipeline Transportation) and have a 15-year MACRS recovery period.

The company, relying on Duke Energy Natural Gas Corp., 172 F3d 1255 (10th Cir. 1999), rev'g 109 TC 416 (1997), argued that use within the industry is the determining factor, and the asset belongs in class 13.2. The IRS contended that the nature of the company's...