MCI and Telecom USA
MCI AND Telecom*USA lost a frustrating case on appeal over investment tax credits.
Congress repealed the investment tax credit at the end of 1985, but there were generous transition rules that allowed many companies still to qualify for credits for several more years. The credit allowed by these transition rules was 10% in 1986. It was 8.25% in 1987 and 6.5% from 1988 through 1990. Meanwhile, a company had to reduce its depreciable basis by the full amount of the tax credit. MCI and Telecom*USA placed property in service in 1986 on which they were entitled to tax credits. However, they could not use the credits immediately and carried them forward to 1988. Under the rules, they could only claim a 6.5% credit. However, the IRS said each company had to reduce its depreciable basis by 10%. Both the US tax court and the US court of appeals for the DC circuit agreed with the IRS. The appeals court announced its decision in mid-October.