GAS PIPELINE COMPANIES ARE BATTLING THE IRS OVER TAX DEPRECIATION on their assets.

The IRS publishes a list of asset guideline classes by industry. For example, assets used in the pipeline transportation business come under asset class 46.0 and are depreciated over 15 years. Pipeline companies have gathering lines at oil and gas fields to collect fuel from individual wells to a point where it can be batched and transferred to trunk lines for transportation to market. Many pipeline companies put these gathering systems in a separate asset class 13.2 for assets used in the “exploration for and production of petroleum and natural gas deposits.” The IRS insists that this is improper because the pipeline companies are not in the exploration business. However, a federal district court in Wyoming held for the taxpayer in November 1997. The IRS has appealed.

Other cases are pending. Duke Energy Natural Gas Corp. filed a petition in the US Tax Court a few days before Christmas. Meanwhile, Rep. Sam Johnson (R.- Texas) introduced a bill in Congress last month to clarify the rules. The bill would allow 7-year depreciation on pipes and other equipment used to deliver natural gas from the wellhead to a processing plant, or to an interconnection point with an interstate gas company or intrastate transmission pipeline.

Congress is expected to start work on a tax-cut bill in the late spring. Johnson is a member of the House tax-writing committee.