Two telephone companies are arguing they were shortchanged on depreciation.

MCI and Telecom*USA both qualified for investment tax credits in 1986. The credit was 10% of the cost of new equipment put into service that year. Each company had to reduce its tax basis for depreciation by an amount tied to the credit. However, neither was able to use its tax credit immediately and carried it forward to a later year. The credit was reduced to 6.5% for the year it was used. The two companies filed refund claims in 1994 seeking to recover the lost basis for depreciation. They lost in federal district court. The case is now before the US appeals court for the DC circuit.