§  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