UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


TELECOM UNITED STATES INC

v.

UNITED STATES


98-5361a

D.C. Cir. 1999


*	*	*


Garland, Circuit Judge: Telecom*USA, Inc. and its sub- sidiaries, and
MCI Communications Corporation and its sub- sidiaries, (collectively,
"Telecom"), appeal the district court's  ruling that Telecom is not
entitled to the income tax refund it  seeks. The case concerns
transition rules enacted by Con- gress in 1986 to cushion the impact
of the repeal of the  investment tax credit (ITC). Telecom's principal
contention  is that its basis in depreciable property should be
reduced by  the amount of ITC it received in the year to which it
carried  its ITC forward. Following the lead of the Federal Circuit 
and the Court of Federal Claims, the district court rejected  this
argument and held that Telecom must instead reduce its  basis by the
larger amount of ITC first available to it in the  year in which it
placed the property in service. We agree  with the district court and
the other courts that have consid- ered this issue, and affirm.


I


To put Telecom's claims in context, we begin with a brief  history of
the depreciation deduction and the ITC. The  Internal Revenue Code has
long provided for depreciation  deductions through which a property
owner can deduct the  cost of its property over the property's useful
life. See 26  U.S.C. s 167(a); 26 U.S.C. s 23(l ) (1934); United
States v.  Ludey, 274 U.S. 295, 297-300 (1927). Under the straight
line  method of depreciation, for example, an asset with an initial 
cost of $1,000,000, a salvage value of $50,000, and a useful life  of
10 years would generate annual deductions of $95,000. See  26 U.S.C. s
167(b)(1) (1988); 26 C.F.R. s 1.167(b)-1. Vari- ous other methods of
depreciation also have been permitted. 


See, e.g., 26 U.S.C. s 167(b)(2) (1988) (double declining bal- ance
method); id. s 167(b)(3) (sum of the years-digits meth- od); see 26
C.F.R. ss 1.167(b)-2, 1.167(b)-3.


In the Economic Recovery Tax Act of 1981 (ERTA), Con- gress adopted a
new set of depreciation rules called the  Accelerated Cost Recovery
System (ACRS). See Pub. L. No.  97-34, sec. 201(a), s 168, 95 Stat.
172, 203 (codified as amend- ed at 26 U.S.C. s 168). Intended to
stimulate economic  expansion, ACRS permits recovery of capital costs
for most  tangible depreciable property by using accelerated methods 
over predetermined periods that are generally shorter than  the useful
life of the asset. See 26 U.S.C. s 168(e)(1); S. Rep.  No. 97-144, at
48 (1981). ACRS also eliminates the salvage  value limitation, hence
allowing the entire cost of the property  to be depreciated. See ERTA,
sec. 201, s 168(f)(9), 95 Stat.  at 216.


Although not as old as the depreciation deduction, the  investment tax
credit dates back to the Kennedy Administra- tion and was also
designed to stimulate the economy by  encouraging investment. See
Revenue Act of 1962, Pub. L.  No. 87-834, s 2, 76 Stat. 960, 962-73;
H.R. Conf. Rep. No.  87-2508, at 14 (1962). The most recent
incarnation of the  ITC, prior to amendment and repeal in 1986, gave
taxpayers  a one-time credit of 10% of the cost of the property. See
26  U.S.C. s 46 (1982). The credit was a dollar-for-dollar offset 
against a taxpayer's tax liability, see id. s 39(a), but could not  be
used if the taxpayer had insufficient tax liability for the  year, see
id. s 46(a)(3). The unused credits could, however,  be carried back
and carried forward a specified number of  years to reduce the
taxpayer's liabilities in those years. See  id. s 46(b).


The combined use of ITCs and depreciation deductions  gave taxpayers
generous benefits. For an asset costing  $1,000,000, the taxpayer
could both claim an ITC of $100,000  (10% of the cost) and deduct
$1,000,000 worth of depreciation  (the full cost of the asset). In
1982, Congress concluded that  this combination was distorting the
allocation of capital re- sources and determined to reduce the level
of benefits. See  S. Rep. No. 97-494, at 122 (1982). A new provision,


as part of the Tax Equity and Fiscal Responsibility Act of  1982
(TEFRA), provided that an asset's "basis"--the value of  the property
used to determine the total available deprecia- tion deductions--would
be reduced by 50% of the amount of  the ITC. See Pub. L. No. 97-248, s
205(a), 96 Stat. 324, 427  (codified at 26 U.S.C. s 48(q)(1) (1982)).
Hence, although an  asset originally costing $1,000,000 would continue
to yield an  ITC of $100,000, it would generate a total of only
$950,000  worth of depreciation ($1,000,000 minus 50% of the $100,000 
credit).


In 1986, Congress concluded that the ITC was still distort- ing
investment activity by channeling too much investment  into
tax-favored sectors. See S. Rep. No. 99-313, at 96 (1986).  Thus, in
the Tax Reform Act of 1986, Congress repealed the  ITC for property
purchased in 1986 and thereafter. See Pub.  L. No. 99-514, s 211, 100
Stat. 2085, 2166-70 (codified as  amended at 26 U.S.C. s 49(a)
(1988)).1 It made an exception,  however, for "transition
property"--property purchased prior  to 1986 but placed in service in
1986 or later. For such  property, the ITC was phased out over a
number of years.  For calendar year taxpayers, transition property
placed in  service in 1986 received the full 10% credit; property
placed  in service in 1987 received a reduced credit of 8.25% of cost;
 and property placed in service in 1988 or later received a  credit of
only 6.5%. See 26 U.S.C. s 46; id. s 49(b), (c)(1),  (c)(3)(A),
(c)(5)(A) (1988).2 The phased reduction is known  colloquially as the


The 1986 amendments included two other changes of signif- icance for
this case. First, the haircut was also applied to  credits carried
forward from the year in which they were first  available to the
taxpayer. Credits carried forward for use in  1987 were reduced to
8.25%; those carried forward to 1988 




__________

n 1 The Tax Reform Act repealed the "regular" investment tax  credit at
issue here. See id. s 211, 100 Stat. at 2166; 26 U.S.C.  s 49(a)
(1988). Other investment credits survive. See 26 U.S.C.  s 46.


2 Telecom is a calendar year taxpayer. MCI Communications  Corp. is a
fiscal year taxpayer as to which slightly different  percentages
apply. See id. s 49(c)(3).


and subsequent years were reduced to 6.5%. See id.  s 49(c)(2),
(c)(3)(B), (c)(5)(A). Second, the amount of the  basis adjustment for
purposes of determining depreciation  was changed from 50% to 100% of
the amount of the ITC.  See id. s 49(d)(1).


The following year, the Internal Revenue Service (IRS, or  "the
Service") issued a revenue ruling to guide taxpayers with  respect to
the operation of the 1986 amendments. See Rev.  Rul. 87-113, 1987-2
C.B. 33. Example 1 of that ruling  considered the case of a $1,000,000
machine purchased in 1985  and placed in service in 1986, the final
10% year. The ruling  stated that under those circumstances, the
taxpayer was  entitled to an ITC of $100,000 (10% of the $1,000,000
cost)  and had to reduce the machine's depreciable basis by 100% of 
that amount, (i.e., to $900,000).


But what if the taxpayer were unable to use the credit in  1986, and
could not use it until 1988? Did the basis for  depreciation
deductions have to be reduced by the 10% credit  available in 1986,
the year the property was placed in service,  or by the 6.5% credit
available in 1988, the year to which the  taxpayer carried the credit
forward? Example 3 of Revenue  Ruling 87-113 addressed that issue, and
concluded that the  basis had to be reduced by the amount of the
credit available  in the year the property was placed in service. In
the  example, the credit available to the company when the prop- erty
was placed in service in 1986 was $100,000. Accordingly,  following
the 100% basis reduction rule, the basis had to be  reduced to
$900,000. This, the IRS concluded, was the case  even though the
amount of the credit the company received  was only $65,000 when it
was eventually used in 1988. The  company, the IRS said, was "not
allowed to increase its basis  in the property to reflect the
reduction in the investment  credit carryforward." Id. at 35.


II


As Telecom acknowledges, its case presents the same situa- tion as that
addressed in Example 3 of Revenue Ruling 


87-113, and the IRS has treated it in precisely the same way.  See
Telecom Br. at 18 n.12. Telecom owned transition prop- erties placed
in service in calendar years 1986 and 1987. The  ITC percentages
available for those properties in those years  were 10% and 8.25%,
respectively. When calculating its  depreciation deductions in the
years the properties were  placed in service, Telecom reduced its
bases by amounts that  reflected those percentages. Telecom was unable
to use its  ITCs immediately, however, because it had insufficient tax
 liabilities in those years; it therefore carried the credits  forward
to 1989 and thereafter. Under the ITC haircut, the  percentage
received by Telecom in those years was only  6.5%.3


Telecom filed claims for refunds with the IRS, seeking the  additional
depreciation deductions it could have taken had it  calculated its
properties' bases using the ITCs it actually  received. The IRS denied
the claims, and Telecom filed  refund actions in the district court.
Telecom advanced one  principal theory and two alternatives in support
of its posi- tion. Its principal contention was that several
interconnected  provisions of the Internal Revenue Code permitted it
to  amend its earlier returns by adjusting its properties' bases 
upward to reflect the amounts of ITC it actually used. Alter-
natively, Telecom argued that 26 U.S.C. s 168, as construed  in a
proposed treasury regulation, entitled it to adjust its  bases in the
carryforward years to reflect the effective  change in the cost of its
properties brought about by the  haircut applied when its ITCs were
carried forward. As a  second alternative, Telecom contended that 26




__________

n 3 The "Telecom" reference in this paragraph is only to  Telecom*USA,
Inc. and its subsidiaries. As noted supra note 2,  MCI Communications
Corporation is a fiscal year taxpayer. It  owns transition properties
placed in service in fiscal years 1986,  1987, and 1988. The ITC
percentages available for those properties  were 10%, 10%, and 7.375%,
respectively. Like Telecom, MCI  carried its ITCs forward to 1989 and
subsequent years. As the  principles involved are the same, we confine
our textual discussion  to the calendar year situation faced by


which provides deductions for portions of tax credits that a  taxpayer
has not been allowed to use, entitled it to deductions  for the
difference between the amounts of ITC allowable in  the initial and
carryforward years.


The district court rejected Telecom's arguments on cross- motions for
summary judgment. See MCI Communications  Corp. v. United States, 26
F. Supp. 2d 6 (D.D.C. 1998).  Relying both on Revenue Ruling 87-113
and on the opinion of  the U.S. Court of Appeals for the Federal
Circuit in B.F.  Goodrich Co. v. United States, 94 F.3d 1545 (Fed.
Cir. 1996),  which denied a taxpayer's virtually identical claim, the
court  rejected Telecom's argument that it should be permitted to 
adjust its original basis. The court also rebuffed Telecom's 
alternative efforts to utilize sections 168 and 196, holding  those
sections inapplicable to the circumstances at issue here.


III


On appeal, Telecom presses all of the arguments it raised  below. There
are no factual disputes, and we review the  district court's grant of
summary judgment de novo. See Tao  v. Freeh, 27 F.3d 635, 638 (D.C.
Cir. 1994). To decide this  case, we must analyze the interplay of
three quite technical  statutory provisions. Fortunately, we are not
left wholly to  our own devices, but rather are assisted by two
important  interpretive guides. Equally fortunate, the two point in
the  same direction.


The first guide instructs that a taxpayer who seeks a  deduction bears
the burden of demonstrating a clear entitle- ment. See New Colonial
Ice Co. v. Helvering, 292 U.S. 435,  440 (1934) ("[O]nly as there is
clear provision therefor can any  particular deduction be allowed.");
Lenkin v. District of  Columbia, 461 F.2d 1215, 1225 (D.C. Cir. 1972)
(applying New  Colonial Ice rule to depreciation deductions); cf.
United  States v. Centennial Sav. Bank FSB, 499 U.S. 573, 583-84 
(1991) (citing "rule that tax-exemption and -deferral provi- sions are
to be construed narrowly"); United States v. Wells 


Fargo Bank, 485 U.S. 351, 354-55 (1988) ("[E]xemptions from  taxation
are not to be implied; they must be unambiguously  proved."). At oral
argument, Telecom agreed that it bears  this burden, but insisted that
its entitlement to deductions is  clear.


The second interpretive guide requires us to accord at least  some
deference to the IRS' revenue ruling. Although a  revenue ruling does
not have the force and effect of Treasury  Department Regulations, see
26 C.F.R. s 601.601(d)(2)(v)(d),  it does constitute "an official
interpretation by the Service,"  id. s 601.601(d)(2)(i)(a).
Accordingly, the Supreme Court  and virtually all of the Circuits have
indicated that revenue  rulings are entitled to some degree of


In Davis v. United States, 495 U.S. 472, 484 (1990), the  Court
indicated that revenue rulings are entitled to "consider- able weight
where they involve the contemporaneous con- struction of a statute and
where they have been in long use"5 --two conditions that are roughly
satisfied here.6 Davis did 




__________

n 4 See generally Estate of McLendon v. Commissioner, 135 F.3d  1017,
1023 (5th Cir. 1998) (noting that "virtually every circuit  recognizes
some form of deference," and that only the Tax Court  takes the
"position that revenue rulings are nothing more than the  legal
contentions of a frequent litigant") (citing Pasqualini v. 
Commissioner, 103 T.C. 1, 8 (1994)); John F. Coverdale, Court  Review
of Tax Regulations and Revenue Rulings in the Chevron  Era, 64 Geo.
Wash. L. Rev. 35, 81-84 (1995).


5 Subsequently, in United States v. Thompson/Center Arms Co.,  the
Court spoke neutrally to the question of whether deference was  due,
stating that "even if they were entitled to deference," the  revenue
rulings proffered in that case did not apply to the questions  there
at issue. 504 U.S. 505, 518 n.9 (1992). In Commissioner v.  Schleier,
the Court noted that revenue rulings "may not be used to  overturn the
plain language of a statute," 515 U.S. 323, 336 n.8  (1995), a point
consistent with all of the varieties of deference cited  infra notes
8, 9, & 10.


6 Revenue Ruling 87-113 was issued the year following the 1986 
amendments, and has constituted the Service's consistent position  for
the 12 years since it was issued.


not, however, address how this standard compared to the  relatively
high level of deference applicable to agency inter- pretations of
ambiguous statutes under Chevron U.S.A. Inc.  v. Natural Resources
Defense Council, Inc., 467 U.S. 837  (1984).7 The Courts of Appeals
have accorded revenue rul- ings varying degrees of deference, ranging
from the level  utilized in Chevron,8 to "some weight,"9 to variations
in be- tween.10


This court has not had the occasion to decide the precise  degree of
deference due to revenue rulings, although we have 




__________

n 7 Chevron held that if a "statute is silent or ambiguous with 
respect to the specific issue, the question for the court is whether 
the agency's answer is based on a permissible construction of the 
statute." Id. at 843.


8 See Johnson City Med. Ctr. v. United States, 999 F.2d 973, 975- 76
(6th Cir. 1993) (adopting Chevron-like deference).


9 See, e.g., First Chicago NBD Corp. v. Commissioner, 135 F.3d  457,
458-59 (7th Cir. 1998) (holding that revenue rulings deserve  "some
weight" and are "entitled to respectful consideration," but  "not to
the deference that the Chevron doctrine requires in its  domain")
(citations omitted); Farmar v. United States, 689 F.2d  1017, 1024
n.12 (Ct. Cl. 1982) (stating that revenue rulings "are  entitled to
some consideration and carry some weight," and noting  "Commissioner's
authority to choose between reasonable interpreta- tions").


10 See, e.g., Gillespie v. United States, 23 F.3d 36, 39 (2d Cir. 
1994) ("Revenue rulings issued by the IRS are entitled to great 
deference, and have been said to have the force of legal precedent 
unless unreasonable or inconsistent with the provisions of the 
Internal Revenue Code.") (internal quotation marks and citations 
omitted); Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1145 (3d 
Cir. 1993) ("We give weight to IRS revenue rulings and do not 
disregard them unless they conflict with the statute they purport to 
interpret or its legislative history, or if they are otherwise unrea-
sonable.") (internal quotation marks and citations omitted); Foil v 
Commissioner, 920 F.2d 1196, 1201 (5th Cir. 1990) (noting that 
revenue rulings are entitled to "respectful consideration," but will 
be disregarded if in conflict with the statute or its legislative 
history, or if otherwise unreasonable); United States v. Howard, 


referred to such rulings as "the second most important  agency
pronouncements that interpret the Code" and have  looked to them when
neither the statute nor Treasury regula- tions provided clear
guidance. Stichting Pensioenfonds Voor  de Gezondheid v. United
States, 129 F.3d 195, 198 (D.C. Cir.  1997). We need not announce a
precise calibration here,  either. Telecom does not dispute that some
deference would  be due Revenue Ruling 87-113 if it were consistent
with the  statute's language and legislative history, although it
argues  that even then the degree of deference should be minimal.11 
But utilizing even a minimal level of deference--or imposing  only a
minimal burden of clarity under the first interpretive  guide
discussed above--is sufficient to decide this case. As  we discuss
below, the IRS' construction of the statute is more  than consistent
with the statutory language and legislative  history, and Telecom has
been unable to point to anything  that, with any measure of clarity,


IV


In this Part, we consider Telecom's first claim: that under  the 1986
amendments, the basis of transition property should  be reduced by the
actual amount of ITC ultimately used by  the taxpayer, rather than by
the amount available in the year  in which the asset is placed in
service.




__________

n 855 F.2d 832, 836 (8th Cir. 1988) (giving "weight" and according 
"respectful consideration").


11 At oral argument, counsel for Telecom agreed that the Davis 
standard governs, but argued for a minimal level of deference  because
Revenue Ruling 87-113 does not contain an express expla- nation for
its construction of the relevant statutory sections. The  ruling does,
however, discuss the same statutory language upon  which the IRS
relies in this case, and sets forth the Service's  interpretation of
that language. It notes that "section 48(q)(1)  requires the taxpayer
to reduce the basis" by the "credit deter- mined," and subsequently
states that the "basis must be reduced in  the year the property is
placed in service." Rev. Rul. 87-113,  1987-2 C.B. 33, 34-35. Compare
discussion infra Part IV.A.  Counsel conceded that this degree of
explanation would ordinarily  be entitled to some weight, were it not
for the assertedly contrary  legislative history discussed infra Part


A


The government's contrary argument is grounded in the  language of
several statutory sections. It begins with section  48(q)(1), the
provision requiring that basis be reduced by the  ITC. See 26 U.S.C. s
48(q)(1) (1988).12 That section, as  modified by section 49(d)(1)(A),
provides that "if a credit is  determined under section 46(a) ... the
basis of such property  shall be reduced by [100 percent] of the
amount of the credit  so determined." Id. s 48(q)(1); see id. s
49(d)(1)(A).13  Hence, to establish the amount by which the basis must
be  reduced, we must look to "the amount of the credit so  determined"
under section 46(a). That section, in turn, pro- vides that "the
amount of the investment credit determined  


__________

n 12 In this subpart, citations to 26 U.S.C. ss 46, 48, and 49 are to 
the versions of those sections in effect during 1986-90. In 1990, the 
transitional rules at issue here were removed from the Code. See 
Revenue Reconciliation Act of 1990, Pub. L. No. 101-508,  s 11813(a),
104 Stat. 1388-400, 1388-536.


13 Section 48(q)(1) states:


For purposes of this subtitle, if a credit is determined under  section
46(a) with respect to section 38 property, the basis of  such property
shall be reduced by 50 percent of the amount  of the credit so
determined.


Section 49(d)(1) states in part:


In the case of periods after December 31, 1985, with respect  to so
much of the credit determined under section 46(a) with  respect to
transition property as is attributable to the regu- lar investment
credit (as defined in subsection (c)(5)(B))--


(A) paragraphs (1), (2), and (7) of section 48(q) and section  48(d)(5)
shall be applied by substituting "100 percent" for  "50 percent" each
place it appears.... 


Congress made technical amendments to s 49 in 1988 and incorpo- rated
the effective date of the original s 49 of the Tax Reform Act  of
1986. See Technical and Miscellaneous Revenue Act of 1988  (TAMRA),
Pub. L. No. 100-647, ss 1002(e), 1019, 102 Stat. 3342,  3367 & 3593.
The version of s 49 quoted above incorporates those  amendments.


under this section for any taxable year shall be an amount  equal to"
the sum of certain percentages of "the qualified  investment" as
"determined under subsection[ ] (c)." Id.  s 46(a).14 And subsection
(c), in turn, defines "qualified  investment" by reference to property
"placed in service"  during the taxable year. See id. s 46(c)(1).15
Putting these  provisions together, the IRS concludes that basis must
be  reduced by the amount of the credit "determined," and that  this
refers to the credit for which the property qualified  during the
taxable year in which the property was placed in  service.


The interpretation the IRS advances here is the one re- flected in
Revenue Ruling 87-113 and adopted by the court  below, see MCI, 26 F.
Supp. 2d at 10, by the Court of Federal  Claims, see B.F. Goodrich v.
United States, 32 Fed. Cl. 571,  572 (Fed. Cl. 1995), and by the
Federal Circuit, see B.F.  Goodrich, 94 F.3d at 1549. In the words of
the Federal  Circuit, "[s]ince the investment tax credit is determined
when  the property is placed in service, and the statute mandates a 
reduction in the basis when the credit is determined, we hold  that
the basis of transition property must be reduced when  the taxpayer
placed the property in service." Id. We find  this interpretation to
be a more than reasonable construction  of the words of the statutory
provisions.16 


__________

n 14 Section 46(a) states in part:


For purposes of section 38, the amount of the investment  credit
determined under this section for any taxable year  shall be an amount
equal to the sum of the following percent- ages of the qualified
investment (as determined under sub- sections (c) and (d)).... 


15 Section 46(c)(1) states in part:


For purposes of this subpart, the term "qualified investment"  means,
with respect to any taxable year ...--


(A) the applicable percentage of the basis of each new  section 38
property (as defined in section 48(b)) placed in  service during such
taxable year....


16 As Telecom notes, B.F. Goodrich arose in a different procedur- al
posture from the instant case. Here, the taxpayer initially 


Telecom, of course, disagrees. In its briefs, it contends  that the
language of sections 46, 48 and 49 makes "clear" that  the haircut on
ITC carryforwards must be taken into account  in calculating
adjustments to depreciable basis. See Telecom  Br. at 15. At oral
argument, however, Telecom conceded that  the statutory language is
"confusing and technical." More  important, Telecom was unable to cite
any clear language in  support of its position. Rather than rely on
specific lan- guage, Telecom's fundamental contention is that the
three  sections must be read as an "integrated whole," and that if 
one does so, the validity of its position becomes manifest. Id. 
Telecom's argument is that section 49,17 which imposes the 




__________

n reduced its basis by the full amount of the ITC allowed in the year 
the property was placed in service, and subsequently sought to 
increase the basis through a refund claim. In B.F. Goodrich, by 
contrast, instead of initially reducing its basis by the full amount
of  the ITC, the taxpayer reduced it only enough to reflect the 6.5% 
credit it "reasonabl[y] expect[ed]" to receive in the carryforward 
year. This procedural difference, however, did not drive the Feder- al
Circuit's opinion. Although the court did hold that the statute 
"leaves no room for consideration of Goodrich's 'reasonable expecta-
tions,' " 94 F.3d at 1549, it reached that conclusion because, like
the  IRS, it read the statute as providing that an "investment tax
credit  is determined when the property is placed in service." Id.


17 Section 49(c) states in part:


(1) .... Any portion of the current year business credit  under section
38(b) for any taxable year beginning after June  30, 1987, which is
attributable to the regular investment  credit shall be reduced by 35
percent.


2) .... Any portion of the business credit carryforward  under section
38(a)(1) attributable to the regular investment  credit which has not
expired as of the close of the taxable  year preceding the 1st taxable
year of the taxpayer begin- ning after June 30, 1987, shall be reduced
by 35 percent.


(3) .... In the case of any taxable year beginning before  and ending
after July 1, 1987--


(A) any portion of the current year business credit under  section
38(b) for such taxable year, or


haircut on the ITC, must be understood to alter the basis  adjustment
provisions of section 48(q)(1) so that they reflect  not only the
haircut on current-year credits, but the haircut  on credits carried
forward as well.18


If this were Congress' intent, it would not be an unreason- able one.
But as already noted, there is nothing in the  language of any of the
three statutory provisions that com- mands this interpretation.
Rather, the clearest language in  the statute indicates that the key
question is when the credit  is "determined," for that is the time at
which the basis must  be reduced. See 26 U.S.C. s 48(q)(1) (1988). And
while it  would not be unreasonable to conclude that a credit is not 
"determined" until it is used, the government's contention  that a
credit is determined when it first becomes available,  i.e., when the
asset is placed in service, is also reasonable.  Indeed, the
government's construction is the more reasonable  of the two in light
of section 46(c)'s definition of qualified  investment by reference to
property "placed in service" dur- ing the taxable year.19




__________

n (B) any portion of the business credit carryforward under  section
38(a)(1) to such year,


which is attributable to the regular investment credit shall be 
reduced by the applicable percentage.


18 Telecom further contends that there is no ground for the IRS' 
conclusion that s 49 should apply to ss 46 and 48 in four other 
circumstances, while refusing to apply it as requested by Telecom. 
See Telecom Reply Br. at 5-6. But unlike the application Telecom 
seeks, in each of the other circumstances the application is clear 
from the text of the statute. See 26 U.S.C. s 49(a) (1988) (repealing 
the ITC); id. s 49(c)(1) ("reduc[ing] by 35 percent" the "current 
year investment credit" for tax years beginning after June 30,  1987);
id. s 49(d)(1) (providing "full basis adjustment" by "substi- tuting
'100 percent' for '50 percent' each place it appears" in  s 48(q));
id. ss 49, 48(q) (adjusting basis to reflect current year  business
credit "determined under section 46(a)" as reduced by the  percentages
prescribed in s 49(c)).


19 Even Telecom concedes that a credit is at least "initially" 
determined at that time, since depreciation begins when the asset is


B Telecom attempts to buttress its argument by directing our  attention
to the legislative history of the Tax Reform Act of  1986, which it
insists "unambiguously" supports its position.  See Telecom Br. at 20.
According to Telecom, the Confer- ence Report on the Act clearly
demonstrates that Congress  intended basis adjustments to reflect the
haircut applied to  carryforward credits.20 That Report states, in
pertinent part:


Full basis adjustment 


A taxpayer is required to reduce the basis of property  that qualifies
for transition relief ("transition property")  by the full amount of
investment credits earned with  respect to the transition property
(after application of the  phased-in 35-percent reduction, described
below)....


Reduction of ITC carryforwards and credits  claimed under transitional
rules ....


Under the conference agreement, the investment tax  credit allowable
for carryovers is reduced by 35 percent.  The reduction in investment
tax credit carryovers is  phased in with the corporate rate reduction.
The 35- percent reduction is fully effective for taxable years 
beginning on or after July 1, 1987.... The investment  tax credit
earned on transition property is reduced in the  same manner as


__________

n placed in service, see 26 U.S.C. s 168(d)(1), (d)(4), and since the 
assets's basis must be calculated in order to take a depreciation 
deduction.


20 Telecom also relies on language contained in an explanation of  the
Tax Reform Act prepared by the Staff of the Joint Committee  on
Taxation. See Staff of Joint Comm. on Taxation, 99th Cong., 2d  Sess.,
General Explanation of the Tax Reform Act of 1986, at 123  (Comm.
Print 1987). We need not consider what, if any, weight  should be
given to this post-enactment publication, see Estate of  Wallace v.
Commissioner, 965 F.2d 1038, 1050 n.15 (11th Cir. 1992);  McDonald v.
Commissioner, 764 F.2d 322, 336 n.25 (5th Cir. 1985),  because the
language cited by Telecom does not add anything  material to the text
of the Conference Report.


. . . .


As described above, a full basis adjustment is required  with respect
to the reduced amount of the investment tax  credit. Thus, for
transition property that is eligible for a  6.5 percent investment tax
credit, the basis reduction  would be with respect to the 6.5 percent
credit, not the  unreduced 10 percent credit.


H.R. Conf. Rep. No. 99-841, at II-63 to -64 (1986) (underlin- ing
added).


Telecom argues that the first sentence quoted above indi- cates that a
property's basis should be reduced to reflect the  ITC haircut
actually received in the carryforward year, since  it states that a
taxpayer must reduce the basis by the amount  of the ITC "after
application of the phased-in 35-percent  reduction." Id. Although this
is not an unreasonable read- ing, the sentence is not unambiguous. It
does not state  whether it refers to the phased-in reduction that
applies to a  credit used in the same year in which the property is
placed  in service (a current-year credit), or whether it refers to
the  phased-in reduction that applies to a carryforward. The 
government, the district court, and the Federal Circuit all  read the
sentence as referring to current-year rather than  carryforward
credits--largely because the sentence is not in  the subsequent
section entitled "Reduction of ITC carryfor- wards and credits," but
rather in the preceding section whose  title does not mention
carryforwards. See B.F. Goodrich, 94  F.3d at 1549; MCI, 26 F. Supp.
2d at 11. Although Telecom  rightly points to a number of indications
that the sections are  interrelated (for example, cross-references to
material "de- scribed below" in the first section and to material
"described  above" in the second), these do not resolve the question
with  clarity because the referenced material does not itself indicate


Telecom also points to the last paragraph of the quoted  excerpt, which
is contained in a section that does refer to both  current-year
credits and carryforwards. That sentence  states that "for transition
property that is eligible for a 6.5  percent investment tax credit,
the basis reduction would be  with respect to the 6.5 percent credit,
not the unreduced 10 


percent credit." H.R. Conf. Rep. No. 99-841, at II-64 (em- phasis
added). But this sentence contains an ambiguity of its  own: the
meaning of the word "eligible." The government's  view, and that of
the other courts to have considered the  question, is that a taxpayer
is eligible for the full amount of  the credit available to it in the
year in which it places an asset  in service. That the taxpayer may
not be able to use the  credit for which its property is eligible
because of the pecu- liarities of the taxpayer's individual situation
does not render  the property itself ineligible. See MCI, 26 F. Supp.
2d at 10;  B.F. Goodrich, 32 Fed. Cl. at 573 ("When property is placed
 in service, it is eligible for the credit irrespective of whether 
the credit later may be carried forward and reduced."). We  conclude
that the government's interpretation of the legisla- tive history is
at least as reasonable as that of Telecom.21


C


The final component of Telecom's argument is an appeal to  two
"principles of tax policy" which, it argues, require us to  interpret
the statute as Telecom does. But even if that kind  of appeal could
overcome the conclusions drawn above re- garding the statutory
language and legislative history, we  would still find the tax policy
principles at issue here too  ambiguous and indeterminate to guide our




__________

n 21 The government also argues that Telecom's interpretation is 
foreclosed by Congress' failure to adopt a technical amendment, 
proposed by industry representatives during the development of the 
Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub.  L. No.
100-647, 102 Stat. 3342, that would have permitted precisely  the
upward adjustment in basis Telecom seeks in this case. This  post-1986
legislative history, however, "is a hazardous basis for  inferring the
intent of an earlier Congress." Pension Benefit Guar.  Corp. v. LTV
Corp., 496 U.S. 633, 650 (1990) (internal quotation  marks and
citations omitted). On the other hand, the statements  submitted in
the course of that failed effort do indicate that  industry
representatives believed the basis adjustment provisions  were
ambiguous and could be read as the IRS reads them here.  See Staff of
H.R. Comm. on Ways and Means, Written Comments on  H.R. 2636, The
Technical Corrections Act of 1987, Vol. 1, 100th  Cong., 2d Sess.,


Telecom's first contention is that depreciation deductions  are
governed by a principle of "full cost recovery"--i.e.,  allowing
taxpayers to use depreciation to deduct the full  amount of their
investments--and that only its interpretation  of the interaction
between depreciation deductions and the  ITC ensures such recovery.
Telecom argues that "[i]n eco- nomic terms, the investment tax credit
can be viewed as the  government's co-investment in a taxpayer's
property." Tele- com Br. at 9. Thus, to determine the taxpayer's
"share" of  the investment, the ITC must be deducted from the proper-
ty's initial cost. To ensure full cost recovery, the taxpayer  must
then be permitted to deduct the balance as depreciation.


Translating this analysis to our simplified example, Tele- com's
contention is that, because it received a $65,000 credit  on a
$1,000,000 investment when it used its ITC in 1989  (when the ITC
percentage was 6.5%), its share of the invest- ment in the property
was $935,000. Accordingly, $935,000  should be the basis used to
calculate its depreciation deduc- tions. Under the IRS' view, however,
Telecom was required  to subtract $100,000 from the asset's $1,000,000
cost to arrive  at its basis, because the property was placed into
service in  1986 (when the ITC percentage was 10%). According to 
Telecom, limiting its deductions to the resulting basis,  $900,000,
renders it unable to recover its full costs.


The government's first response is that depreciation deduc- tions and
the tax basis upon which they are computed must  be determined by
application of the provisions of the Internal  Revenue Code, and not
by appeal to notions of "full cost  recovery"--a concept unmentioned
in the Code. Whatever  the merit of this dispute regarding the policy
underlying the  depreciation deduction,22 however, the question at
issue here  involves the interrelationship between the depreciation
deduc- tion and the ITC. While Telecom contends that the ITC 




__________

n 22 In Lenkin v. District of Columbia, we said that in interpreting  a
statutory section that "leaves for the courts the definition of basis 
for 'reasonable' depreciation allowances, their polestar is a basis 
that will enable the taxpayer to recover his investment in the asset."
 461 F.2d at 1229 (interpreting D.C. Code s 47-1583e (Supp. IV 


should be viewed as "economically" equivalent to a govern- ment
investment in the taxpayer's property, over the years  Congress has
offered a number of far more general rationales  for the different
combinations of depreciation deductions and  ITCs it has enacted.23
Indeed, even Telecom concedes that a  principle of full cost recovery
cannot explain why in most  years prior to the enactment of TEFRA
(1982) basis did not  have to be reduced by ITC at all, or why between
TEFRA  and the Tax Reform Act of 1986 basis had to be reduced by  only
50% of ITC. Fine-tuning the principle assertedly at  issue here,
Telecom argues that although these provisions  permitted more than
full cost recovery, Congress has never  permitted less. This
fine-tuning, however, weakens the over- all coherence of the principle


The government further argues that notwithstanding the  basis
adjustment Telecom was required to make, the company 




__________

n 1971)). Sections 46, 48 and 49, however, do not leave the measure  of
basis "for the courts" to determine. Moreover, even Telecom  concedes
that a policy of full cost recovery cannot explain ERTA's  1981
elimination of the requirement that basis be reduced by  salvage
value, which plainly permits the recovery of more than the  asset's
full cost. See 26 U.S.C. s 168(f)(9) (1982). Telecom has a  similar
problem explaining ERTA's adoption of ACRS itself, which  permits
accelerated depreciation schedules over predetermined pe- riods
generally shorter than the useful life of an asset, and hence  permits
taxpayers to take full depreciation deductions before an  asset's true
useful life has ended. See Simon v. Commissioner, 68  F.3d 41, 44-45
(2d Cir. 1995); Liddle v. Commissioner, 65 F.3d 329,  334 (3d Cir.
1995); S. Rep. No. 97-144, at 48.


23 See, e.g., S. Rep. No. 99-313, at 96 (concluding that repeal of  ITC
would permit "[a] large reduction in the top corporate tax rate"  and
thereby "encourag[e] the efficient allocation of all resources");  S.
Rep. No. 97-494, at 123 (concluding that under TEFRA, the  combination
of ACRS deductions and the ITC would "provide  investment incentives
comparable to those in a system without an  income tax"); cf. Simon,
68 F.3d at 44-45 (noting that ERTA  "altered the depreciation scheme"
for "reasons other than sound  accounting practice," particularly "as
a stimulus for economic  growth").


has already recovered more than the full cost of its invest- ments. As
the government notes, a tax credit is a dollar-for- dollar reduction
in a taxpayer's tax liability. A deduction, on  the other hand, is a
dollar-for-dollar reduction in the taxable  income used to compute tax
liability, and thus only reduces  taxes by an amount equal to the
deduction multiplied by the  taxpayer's marginal rate. Hence, for a
taxpayer like Telecom  which was in the 34% marginal bracket, a tax
credit of $10 is  roughly equivalent to a tax deduction of $30.
Applying this  analysis to Telecom's actual tax situation, the
government  calculates that the combination of Telecom's depreciation 
deductions and the deduction-value of its ITCs substantially  exceeded
its total investment in the transition properties.  See Gov't Br. at
40 (citing First Stipulation of Facts at 7 (J.A.  65)). Although
Telecom rightly notes that (at least initially)  Congress intended the
ITC to have an incentive effect in  addition to the benefit of
depreciation deductions, the govern- ment's argument does take some of
the air out of Telecom's  claim not to have recovered its economic
costs. Moreover, we  must be cognizant of the fact that we are dealing
with  transition rules here, and that regardless of Congress' initial 
rationale for the combination of the ITC and depreciation  deduction,
we have little indication of what Congress' inten- tions were for the
transition--other than there be a phase-out  period that would
inevitably involve some compromise be- tween the goal of more
efficient resource allocation, see  S. Rep. No. 99-313, at 96, and a
concern for fair treatment of  investors' reasonable expectations.


Telecom contends that its interpretation of the statute is  compelled
by a second principle of tax policy as well--i.e.,  that similarly
situated taxpayers must be treated in the same  way. Taxpayers who
place property in service in the same  year should be treated the
same, Telecom argues. This  assertedly can only be accomplished if a
taxpayer who cannot  use a credit in that year is permitted to recover
as much of  his investment cost as one who can.


We are not persuaded by Telecom's argument. Taxpayers  who place
property in service in the same year are treated  the same under
Revenue Ruling 87-113. All such taxpayers 


have available to them the same ITC and the same basis  reduction, if
they can use the credit in that year. The  differential impact of
which Telecom complains is not due to  the revenue ruling, but rather
to Telecom's individual tax  situation--that is, to the fact that it
had insufficient tax  liability in the current year to make the ITC
useful. Indeed,  many of the Internal Revenue Code's provisions,
although  neutral on their face, have a differential impact depending 
upon taxpayers' individual circumstances, yet we generally do  not
regard that as a sign of inequitable disparate treatment.24  In any
event, the indeterminacy of the application of this  principle to the
question before us makes it an insufficient  ground for rejecting the
IRS' reasonable interpretation of the  statutory language. See B.F.
Goodrich, 94 F.3d at 1550  ("Nor are we convinced by Goodrich's
hypotheticals that the  alleged inconsistencies between so-called
'similarly situated  taxpayers' warrant a construction which departs
from the  language enacted by Congress.").


In sum, we conclude that neither of Telecom's appeals to  tax policy
generates a principle sufficiently clear either to  meet its burden of
showing an entitlement to the deduction it  seeks, or to overcome even
a minimal level of deference to  Revenue Ruling 87-113.25


V


As alternatives to its argument under sections 46, 48, and  49, Telecom
offers two other grounds for its refund claims. 




__________

n 24 Even the ITC, in its pre-1986 incarnation, had such a differen-
tial effect. Although a company that had to carry its credit forward 
several years would ultimately receive nominally the same ITC as a 
company that could use it immediately, it would enjoy significantly 
less present value.


25 In light of our resolution of this issue, we need not consider the 
weight of the government's reference to its own "principle of tax 
policy"--namely, the principle that tax accounting generally pro-
ceeds on a year-by-year basis, and that tax determinations general- ly
are based on events occurring in the taxable year. See Gov't Br.  at
45 (citing 26 U.S.C. s 441).


First, it contends that even if those sections do not entitle it  to
reach back to the years it put its property into service,  "section
168 and its accompanying regulations" entitle it to  increase its
basis beginning in 1989--the year it actually used  the ITC. Telecom,
however, does not point to any specific  language in section 168,
which sets out the details of the  Accelerated Cost Recovery System,
to support this proposi- tion. Indeed, its briefs do not quote the
language of section  168 at all.


Nor does Telecom point to any "accompanying regula- tions," at least
not to any that have been enacted. Instead, it  rests its claim upon
the language of a proposed Treasury  regulation, Prop. Treas. Reg. s
1.168-2(d)(3), 49 Fed. Reg.  5940, 5945-46 (1984). That regulation,
proposed in 1984,  cannot serve as the basis of any entitlement
because it was  never adopted. But even if it could, it would have no 
application here. The proposed regulation provides for the 
redetermination of an asset's depreciable basis when the cost  of the
asset changes in a subsequent year, "e.g., due to  contingent purchase
price or discharge of indebtedness." Id.  It offers as an example the
case of a buyer who pays  additional consideration for an asset after
the year of its  initial purchase because the purchase price was
partially  contingent on gross profits from the operation of the
asset.  Notwithstanding Telecom's claim that the haircut on ITC 
carryforwards represents the same "economic reality," there  is no
indication that the proposed regulation was intended to  cover such a
statutorily required reduction. That is hardly  surprising, of course,
since the Treasury Department pro- posed the regulation two years


As a second alternative, Telecom contends that it is entitled  to a
deduction pursuant to section 196(a), which permits  taxpayers to take
a deduction for certain unused business  credits. That section
provides:


If any portion of the qualified business credits deter- mined for any
taxable year has not, after the application  of section 38(c), been
allowed to the taxpayer as a credit 


under section 38 for any taxable year, an amount equal to  the credit
not so allowed shall be allowed to the taxpayer  as a deduction for
the first taxable year following the last  taxable year for which such
credit could, under section  39, have been allowed as a credit.


26 U.S.C. s 196(a). Section 38(c), referenced in section 196,  bars a
taxpayer from taking the ITC in excess of its income  tax liability in
a given year, and is the reason Telecom could  not use the credit in
1986 or 1987. Telecom contends that  section 38(c), "in conjunction
with the application of the ITC  haircut to the ITC carryforwards,"
barred it "from taking the  full ITC to which it was originally
entitled." Telecom Br. at  33. According to Telecom, "[s]ection 196(a)
provides a reme- dy for this incomplete cost recovery: it allows
taxpayers to  take deductions in the amounts of the ITC reduced by the
 haircut, thereby fully recovering their investment costs." Id.


Without deciding whether section 196(a) can ever provide a  deduction
to make up for the amount of the ITC haircut,26 we  agree with the
Federal Circuit that the deduction contemplat- ed by section 196(a)
simply does not apply until, in the words  of the section, "the first
taxable year following the last  taxable year for which such credit
could, under section 39,  have been allowed as a credit." Since
section 39 provides  that Telecom's credits may be carried forward for




__________

n 26 The district court held that "[s]ection 196(a) authorizes deduc-
tions for carryforward credits that have expired" because the 
taxpayer had insufficient tax liabilities against which to offset them
 during the allowable carryforward period, "not for credits that are 
disallowed by reason of s 49(c)" and its statutory haircut. MCI, 26 
F. Supp. 2d at 13; see S. Rep. No. 97-494, at 123 ("A deduction will 
be allowed equal to the amount of the basis adjustment in the event  a
credit for which a basis adjustment has been made expires at the  end
of the 15-year carryover period."); Rev. Rul. 87-113 (conclud- ing
that "section 196 only applies to credits disallowed by reason of 
section 38(c), pertaining to tax limitation, and not to credits disal-
lowed by reason of section 49(c)(1), (2) or (3)"); see also 26 U.S.C. 
s 49(c)(4) (1988) ("The amount of the reduction of the regular 
investment credit under paragraphs (1) and (2) shall not be allowed 
as a credit for any taxable year.").


years,27 the section 196 deduction is not available until the 
expiration of that fifteen-year period. See B.F. Goodrich, 94  F.3d at
1550-51; see also S. Rep. No. 97-494, at 123.


In support of the claim that it is nonetheless entitled to  take the
deduction in 1989, Telecom argues that the "unique  nature" of the ITC
haircut for carryforwards, which once  applied reduces the ITC
forever, should make the year before  the haircut the "last taxable
year" for which the full credit  could have been allowed. Telecom Br.
at 33-34. Whatever  the reasonableness of this argument as a matter of
tax policy,  it cannot overcome section 39's express reference to the 
fifteen-year carryforward period. Accordingly, we reject  Telecom's
final effort to secure a deduction.


VI


We uphold the interpretation of the Tax Reform Act re- flected in
Revenue Ruling 87-113, and reject the two alterna- tive grounds
Telecom offers in support of its refund claims.  The decision of the
district court, granting summary judg- ment for the United States, is
therefore affirmed.




__________

n 27 See 26 U.S.C. s 39(a)(1) (1988). Under the current Code, the 
carryforward period is 20 years. See id. s 39(a)(1) (Supp. III