Sec. 32.27  Transactions with affiliates.

    (a) Unless otherwise approved by the Chief, Common Carrier Bureau, 
transactions with affiliates involving asset transfers into or out of 
the regulated accounts shall be recorded by the carrier in its regulated 
accounts as provided in paragraphs (b) through (f) of this section.
    (b) Assets sold or transferred between a carrier and its affiliate 
pursuant to a tariff, including a tariff filed with a state commission, 
shall be recorded in the appropriate revenue accounts at the tariffed 
rate. Non-tariffed assets sold or transferred between a carrier and its 
affiliate that qualify for prevailing price valuation, as defined in 
paragraph (d) of this section, shall be recorded at the prevailing 
price. For all other assets sold by or transferred from a carrier to its 
affiliate, the assets shall be recorded at the higher of fair market 
value and net book cost. For all other assets purchased by or transfered 
to a carrier from its affiliate, the assets shall be recorded at the 
lower of fair market value and net book cost. For purposes of this 
section carriers are required to make a good faith determination of fair 
market value.
    (c) Services provided between a carrier and its affiliate pursuant 
to a tariff, including a tariff filed with a state commission, shall be 
recorded in the appropriate revenue accounts at the tariffed rate. Non-
tariffed services provided between a carrier and its affiliate pursuant 
to publicly-filed agreements submitted to a state commission pursuant to 
section 252(e) of the Communications Act of 1934 or statements of 
generally available terms pursuant to section 252(f) shall be recorded 
using the charges appearing in such publicly-filed agreements or 
statements. Non-tariffed services provided between a carrier and its 
affiliate that qualify for prevailing price valuation, as defined in 
paragraph (d) of this section, shall be recorded at the prevailing 
price. For all other services provided by a carrier to its affiliate, 
the services shall be recorded at the higher of fair market value and 
fully distributed cost. For all other services received by a carrier 
from its affiliate, the service shall be recorded at the lower of fair 
market value and fully distributed cost, except that services received 
by a carrier from its affiliate that exist solely to provide services to 
members of the carrier's corporate family shall be recorded at fully 
distributed cost. For purposes of this section carriers are required to 
make a good faith determination of fair market value.
    (d) In order to qualify for prevailing price valuation in paragraphs 
(b) and (c) of this section, sales of a particular asset or service to 
third parties must encompass greater than 50 percent of the total 
quantity of such product or service sold by an entity. Carriers shall 
apply this 50 percent threshold on a asset-by-asset and service-by-
service basis, rather than on a product line or service line basis. In 
the case of transactions for assets and services subject to section 272, 
a BOC may record such transactions at prevailing price regardless of 
whether the 50 percent threshold has been satisfied.
    (e) Income taxes shall be allocated among the regulated activities 
of the carrier, its nonregulated divisions, and members of an affiliated 
group. Under circumstances in which income taxes are determined on a 
consolidated basis by the carrier and other members of the affiliated 
group, the income tax expense to be recorded by the carrier shall be the 
same as would result if determined for the carrier separately for all 
time periods, except that the tax effect of carry-back and carry-forward 
operating losses, investment tax credits, or other tax credits generated 
by operations of the carrier shall be recorded by the carrier during the 
period in which applied in settlement of the taxes otherwise 
attributable to any member, or combination of members, of the affiliated 
group.

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    (f) Companies that employ average schedules in lieu of actual costs 
are exempt from the provisions of this section. For other organizations, 
the principles set forth in this section shall apply equally to 
corporations, proprietorships, partnerships and other forms of business 
organizations.
[ 52 FR 6561 , Mar. 4, 1987;  52 FR 39534 , Oct. 22, 1987, as amended at  62 FR 2925 , Jan. 21, 1997]

           Subpart C--Instructions for Balance Sheet Accounts