Depreciation case may have opened the door to claiming faster tax writeoffs | Norton Rose Fulbright
Most equipment at a project is depreciated over an average useful life for the entire project based on the industry in which the project is used. For example, equipment at coal-fired power plants that generate electricity primarily for sale is depreciated over 20 years.
Duke Energy Natural Gas Corporation runs an interstate gas pipeline. It depreciated most of its equipment over 15 years by putting its assets in industry class 46.0 for “assets used in the private, commercial, and contract carrying of petroleum, gas and other products by means of pipes . . . .” However, it claimed 7-year depreciation on its gathering lines at gas fields that carry gas from the well to the pipeline. It put these under industry class 13.2 for “assets used by . . . natural gas producers” for producing gas.
The IRS insisted all of Duke’s assets had to go into the 15-year class for pipeline companies. The US appeals court for the 10th circuit disagreed. The court said in a decision in mid-April that Duke Energy can depreciate the gathering lines over seven years. It said these lines were literally “used by . . . gas producers” since the producers contracted with Duke Energy to have their gas carried over the lines.
The case may open the door to separating other assets into classes with faster write-offs. An example is pollution control equipment at coal-fired power plants.