[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.167(l)-3]

[Page 1033-1034]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.167(l)-3  Multiple regulation, asset acquisitions, reorganizations, 
etc.

    (a) Property not entirely subject to jurisdiction of one regulatory 
body--(1) In general. If a taxpayer which uses a method of depreciation 
other than a subsection (l) method of depreciation is required by a 
regulatory body having jurisdiction over less than all of its property 
to use, or not to use, a method of regulated accounting (i.e., 
normalization or flow-through), such taxpayer shall be considered as 
using, or not using, such method of regulated accounting only with 
respect to property subject to the jurisdiction of such regulatory body. 
In the case of property which is contained in a multiple asset account, 
the provisions of Sec. 1.167(a)-7(c) and Sec. 1.167 (a)-11(c)(1)(iv) 
apply to prohibit depreciating a single account by two or more different 
methods.
    (2) Jurisdiction of regulatory body. For purposes of this paragraph, 
a regulatory body is considered to have jurisdiction over property of a 
taxpayer if expenses with respect to the property are included in cost 
of service as determined by the regulatory body for ratemaking purposes 
or for reflecting operating results in its regulated books of account. 
For example, if regulatory body A, having jurisdiction over 60 percent 
of an item of X corporation's public utility property, required X to use 
the flow-through method of regulated accounting in circumstances which 
would bar X from using a method of depreciation under section 167(a) 
other than a subsection (l) method, and if regulatory body B, having 
jurisdiction over the remaining 40 percent of such item of property does 
not so require X to use the flow-through method of regulated accounting 
(or if the remaining 40 percent is not subjectto the jurisdiction of any 
regulatory body), then with respect to 60 percent of the adjusted basis 
of the property X is prohibited from using a method of depreciation for 
purposes of section 167(a) other than a subsection (1) method. If in 
such example, A, having jurisdiction over 60 percent of X's public 
utility property, had jurisdiction over 100 percent of a particular 
generator, then with respect to the generator X would be prohibited from 
using a method of depreciation other than a subsection (l) method.
    (3) Public utility property subject to more than one regulatory 
body. If a regulatory body having jurisdiction over public utility 
property with respect to the taxpayer's regulated books of account 
requires the taxpayer to reflect its tax expense in such books in the 
manner used by the regulatory body having jurisdiction over the public 
utility property for purposes of determining the taxpayer's cost of 
service for ratemaking purposes, the rules of subparagraphs (1) and (2) 
of this paragraph shall apply.
    (b) Leasing transactions--(1) Leased property. Public utility 
property as defined in paragraph (b) of Sec. 1.167(l)-1 includes 
property which is leased by a taxpayer where the leasing of such 
property is part of the lessor's section 167(l) public utility activity. 
Thus, such leased property qualifies as public utility property even 
though the predominant use of such property by the lessee is in other 
than a section 167(l) public utility activity. Further, leased property 
qualifies as public utility property under section 167(l) even though 
the leasing is not part of the lessor's public utility activity if the 
predominant use of such property by the lessee or any sublessee is in a 
section 167(l) public utility activity. However, the limitations of 
section 167(l) apply to a taxpayer only if such taxpayer is subject to 
the jurisdiction of a regulatory body described in a section 
167(l)(3)(A). For example, if a financial institution purchases property 
which it then leases to a lessee which uses such property predominantly 
in a section 167(l) public utility activity, the property qualifies as 
public utility property. However, because the financial institution's 
rates for leasing the property are not subject to the jurisdiction of a 
regulatory body described in section 167(l)(3)(A), the provisions of 
section 167(l) do not apply to the depreciation deductions taken with 
respect to

[[Page 1034]]

the property by the financial institution. For possible application of 
section 167(l) to the lessee, see subparagraph (2) of this paragraph.
    (2) Certain rental payments. Under section 167(l)(5), if a taxpayer 
leases property which is public utility property and the regulatory body 
having jurisdiction over such property for purposes of determining the 
taxpayer's operating results in its regulated books of account or for 
ratemaking purposes allows only an amount of such lessee's expenses with 
respect to the lease which is less than the amount which the taxpayer 
deducts for purposes of its Federal income tax liability, then a portion 
of the difference between such amounts shall not be allowed as a 
deduction by the taxpayer for purposes of its Federal income tax 
liability in such manner and time as the Commissioner or his delegate 
may determine consistent with the principles of Sec. 1.167(l)-1 and 
this section applicable as to when a method of depreciation other than a 
subsection (1) method may be used for purposes of section 167(a).
    (c) Certain partnership arrangements. Under section 167(l)(5), if 
property held by a partnership is not public utility property in the 
hands of the partnership but would be public utility property if an 
election was made under section 761 to be excluded from partnership 
treatment, then section 167(l) shall be applied by treating the partners 
as directly owning the property in proportion to their partnership 
interests.
    (d) Cross reference. See Sec. 1.167(l)-1(c)(1) for treatment of 
certain property as ``pre-1970 public utility property'' and Sec. 
1.167(l)-1(e)(4)(ii) for applicable 1968 method in the case of property 
acquired in certain transactions.

[T.D. 7315, 39 FR 20202, June 7, 1974]