SAGINAW BAY PIPELINE COMPANY v. UNITED STATES: SAGINAW WINS THE PIPELINE DEPRECIATION BATTLE, BUT IS THE WAR OVER?

Saginaw Bay Pipeline Company (Saginaw Bay), an entity formed under a subsidiary of the Michigan Consolidated Gas Corp, operated a 126-mile underground, steel pipeline network constructed to transport "raw" or "wet" natural gas. As such, the company depreciated the asset over seven years under the Modified Accelerated Cost Recovery System (MACRS). The IRS challenged Saginaw Bay's use of this seven-year recovery period, maintaining a fifteen-year depreciation schedule was appropriate. In doing so, it disallowed $3,474,244 worth of depreciation deductions taken by the company. The overt issue for the Sixth Circuit Court of Appeals was whether Saginaw Bay's subterranean natural gas pipeline system should be depreciated over a seven-year period as opposed to a fifteen-year period. In conclusion, by striking down the IRS's argument, the Sixth Circuit further strengthened the foothold of the taxpayers in the continuing war over the appropriate depreciation period for gathering pipelines.