Sec.  32.27   Transactions with affiliates.

   (a) Unless otherwise approved by the Chief, Wireline Competition 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 no less than the higher of fair market value and net
   book cost. For all other assets sold by or transferred to a carrier from its
   affiliate, the assets shall be recorded at no more than the lower of fair
   market value and net book cost.

   (1) Floor. When assets are sold by or transferred from a carrier to an
   affiliate, the higher of fair market value and net book cost establishes a
   floor, below which the transaction cannot be recorded. Carriers may record
   the transaction at an amount equal to or greater than the floor, so long as
   that  action complies with the Communications Act of 1934, as amended,
   Commission rules and orders, and is not otherwise anti-competitive.

   (2) Ceiling. When assets are purchased from or transferred from an affiliate
   to a carrier, the lower of fair market value and net book cost establishes a
   ceiling, above which the transaction cannot be recorded. Carriers may record
   the transaction at an amount equal to or less than the ceiling, so long as
   that  action complies with the Communications Act of 1934, as amended,
   Commission rules and orders, and is not otherwise anti-competitive.

   (3) Threshold. For purposes of this section carriers are required to make a
   good faith determination of fair market value for an asset when the total
   aggregate annual value of the asset(s) reaches or exceeds $500,000, per
   affiliate. When a carrier reaches or exceeds the $500,000 threshold for a
   particular asset for the first time, the carrier must perform the market
   valuation and value the transaction on a going-forward basis in accordance
   with the affiliate transactions rules on a going-forward basis. When the
   total  aggregate annual value of the asset(s) does not reach or exceed
   $500,000, the asset(s) shall be recorded at net book cost.

   (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
   sold by or transferred from a carrier to its affiliate, the services shall
   be  recorded at no less than the higher of fair market value and fully
   distributed cost. For all other services sold by or transferred to a carrier
   from its affiliate, the services shall be recorded at no more than the lower
   of fair market value and fully distributed cost.

   (1) Floor. When services are sold by or transferred from a carrier to an
   affiliate,  the higher of fair market value and fully distributed cost
   establishes  a  floor, below which the transaction cannot be recorded.
   Carriers may record the transaction at an amount equal to or greater than
   the floor, so long as that action complies with the Communications Act of
   1934,  as  amended,  Commission rules and orders, and is not otherwise
   anti-competitive.

   (2)  Ceiling.  When services are purchased from or transferred from an
   affiliate to a carrier, the lower of fair market value and fully distributed
   cost establishes a ceiling, above which the transaction cannot be recorded.
   Carriers may record the transaction at an amount equal to or less than the
   ceiling, so long as that action complies with the Communications Act of
   1934,  as  amended,  Commission rules and orders, and is not otherwise
   anti-competitive.

   (3) Threshold. For purposes of this section, carriers are required to make a
   good faith determination of fair market value for a service when the total
   aggregate annual value of that service reaches or exceeds $500,000, per
   affiliate. When a carrier reaches or exceeds the $500,000 threshold for a
   particular service for the first time, the carrier must perform the market
   valuation  and  value the transaction in accordance with the affiliate
   transactions rules on a going-forward basis. All services received by a
   carrier from its affiliate(s) that exist solely to provide services to
   members  of  the carrier's corporate family shall be recorded at fully
   distributed cost.

   (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 25 percent of the total quantity of such product
   or service sold by an entity. Carriers shall apply this 25 percent threshold
   on  an  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 25 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.

   (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.

   [ 67 FR 5679 , Feb. 6, 2002, as amended at  69 FR 53648 , Sept. 2, 2004]

Subpart C—Instructions for Balance Sheet Accounts