Class Lives for Utility Grading Costs

Prior to the enactment of the modified accelerated cost recovery system (MACRS), the Service ruled that the average useful lives for the initial clearing and grading for electric transmission lines and electric distribution lines were 84 years and 46 years, respectively. The holding was not incorporated in the MACRS asset classes. Thus, these assets were depreciated for MACRS over a seven-year recovery period. However, assets used in the transmission and distribution of electricity for sale were included in asset class 49.14, with a 20-year MACRS recovery period.

The same situation existed for gas utility trunk pipelines and related storage facilities. These assets were included in asset class 49.24, with a 15-year MACRS recovery period. Initial clearing and grade improvements were specifically excluded from asset class 49.24 and, thus, were not included in an asset class. As a result, such costs were recovered using a seven-year period for MACRS.

New Law

Under AJCA Section 901, amending Sec. 168, utility clearing and grading costs incurred to locate transmission and distribution lines and pipelines are assigned to the asset classes of the property to which the costs relatein general, asset class 49.14 for electric utilities (20-year recovery period) and asset class 49.24 for gas utilities (15-year recovery period).

Effective Date

This provision is effective for property placed in service after Oct. 22, 2004.

From Jane Rohrs, Washington, DC