Section of Taxation Publications
  VOL. 57
NO. 1
FALL 2003
Contents | TTL Home

 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Mystifying the Meaning of “Used By” in the Depreciation of Pipelines: Clajon Gas Company v. Commissioner
Jennifer Pogue


In Clajon Gas Co. v. Commissioner, the Tax Court held that Clajon Gas Company must use a 15-year recovery period to depreciate its natural gas gathering systems, instead of the seven-year recovery period Clajon originally used. The Tax Court reached this result by reading an ownership requirement into the phrase “used by” in the description of Asset Class 13.2. The decision in Clajon is noteworthy because it is at odds with the results reached by the United States Court of Appeals for the Tenth Circuit in Duke Energy Natural Gas Corp. v. Commissioner and the United States Court of Appeals for the Sixth Circuit in Saginaw Bay Pipeline Co. v. United States.

Part I of this Note provides background on the natural gas industry and the legal framework relevant to the decision in Clajon. Part II sets out the facts of Clajon and explains the decision of the Tax Court. Finally, Part III analyzes four weaknesses in the Tax Court’s opinion: (A) ignoring a plain language interpretation; (B) not reflecting the realities of the natural gas industry; (C) treating similar depreciable assets differently; and (D) disregarding the doctrine of substance over form.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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