104 T.C. 13">*14 PARR, Judge: Respondent determined the following deficiencies in petitioners' Federal corporate income taxes, net of offsets for credits or refunds of overassessments of taxes to which respondent agrees petitioners are entitled: ¹

1995 U.S. Tax Ct. LEXIS 2">*4

104 T.C. 13">*15 These cases were consolidated for trial, briefing, and opinion. The ultimate issue for decision is whether petitioners may claim investment tax credit (ITC) and accelerated depreciation deductions for certain intermodal cargo containers ² (containers) subject to a safe harbor lease entered into between petitioners and Flexi-Van, Inc. (Flexi-Van), on November 13, 1981. In order to resolve that issue, we must decide, in a case of first impression, the meaning of the phrase "used in the transportation of property", and more specifically the meaning of the word "used", as employed in section 48(a)(2)(B)(v). All section references are to the Internal Revenue Code in effect for the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. We must decide also the extent of contact with the United States, if any, a container must have in order to satisfy the container exception. Additionally, we must decide whether petitioners have shown that Flexi-Van's containers met the container1995 U.S. Tax Ct. LEXIS 2">*5 exception. For that purpose, we consider expert testimony submitted by the parties in support of their respective positions. Last, we decide whether it is nonetheless inequitable to require petitioners to establish for the years in issue that the containers satisfied the container exception. We hold that petitioners may claim ITC and accelerated depreciation for the containers to the extent set forth herein.

1995 U.S. Tax Ct. LEXIS 2">*6 FINDINGS OF FACT

The parties submitted these cases partially stipulated. The stipulation of facts, supplemental stipulation of facts, and attached exhibits are incorporated herein by this reference.

Petitioner Norfolk Southern Corp. is a corporation incorporated in the Commonwealth of Virginia. Its principal place of business at the time of the filing of the petitions was Norfolk, Virginia. For the year 1981 petitioner Norfolk and Western Railway Co. and for the years 1982 through 1985 petitioner Norfolk Southern Corp. was the common parent of an 104 T.C. 13">*16 affiliated group of corporations which filed consolidated Federal income tax returns. Norfolk and Western Railway Co. was one of those affiliated corporations for 1982 through 1985. Hereinafter, Norfolk will be used to refer to Norfolk and Western Railway Co. or Norfolk Southern Corp., as applicable. Under the safe harbor lease petitioners stand in the shoes of Flexi-Van with regard to ITC and accelerated depreciation during the years in issue.

Flexi-Van is a Delaware corporation which was engaged in the business of leasing containers and chassis ³ to shipping companies engaged in the transportation of property1995 U.S. Tax Ct. LEXIS 2">*7 in international trade routes during 1981 through 1985. During 1981, Flexi-Van's world headquarters was located in New York, New York.

Flexi-Van has been engaged since the early sixties in the business of providing containers for lease from locations in the United States and around the world. During 1981, Flexi-Van was the second largest container leasing company in the world, owning about 245,000 TEU's ⁴ of containers, and was one of seven companies that dominated the container leasing industry. ⁵

1995 U.S. Tax Ct. LEXIS 2">*8 Intermodal cargo containers are manufactured in standardized dimensions, with standardized performance characteristics pursuant to international agreements to which the United States is a party. The containers are generally used on vessels specifically constructed or modified for the purpose of transporting such containers. Standardization of the construction characteristics of containers has been developed primarily through the International Organization for Standardization, an international body of standards associations from approximately 55 nations. A container may be certified as meeting international standards by any duly recognized certifying body, including foreign certifying bodies provided for in the international agreements governing 104 T.C. 13">*17 containers to which the United States is a party. In the United States, the U.S. Coast Guard establishes standards for certification of containers. As a result of the standardization of the size and construction characteristics of containers under international standards, certified containers of the same type, size, and construction are in essence interchangeable assets.

The standard container is called a dry van. There are also 1995 U.S. Tax Ct. LEXIS 2">*9 specialized containers, such as refrigeration containers (reefers), open-top containers, flat rack containers, and tank containers. Containers have standard dimensions in length (20 or 40 feet), width (8 or 9 feet), and height (usually 8 or 8.5 feet although the height can also be 9.5 feet). A nonstandard container can have a length of 24, 27, 30, or 35 feet. Of all the containers owned by U.S. carriers and lessors in 1981, more than 90 percent were dry van containers, according to the U.S. Department of Transportation, Maritime Administration.

Intermodal cargo containers used in commerce are not permanently stationed at any location. They move in commerce on board ships and railroad cars at the discretion of the persons shipping property in international commerce. The extent to which containers are used and the routes on which they are used depend on the needs of the persons shipping the property.

A container may travel a water route, inland, or both. After the consignee has unloaded the goods, the container may be either reloaded at or near the place of unloading, returned to the shipping line's local storage facility to await further use, or moved to another location where demand1995 U.S. Tax Ct. LEXIS 2">*10 may be greater. If a container has been damaged, it also may be put into repair. For the containerized shipment of cargo to be efficient, large numbers of containers have to be readily available, and those containers must be spread throughout the world in depots on international trade routes. Often, containers are transported empty from a location where there is a surplus of containers to another location where there is a shortage (repositioning).

104 T.C. 13">*18 According to statistics published in Containerisation International, ⁶ during the period 1978 through 1985, container port handlings (in million TEU's) for the United States (the largest country for port handlings during that period), Japan (the next largest country), and the world (including the United States and Japan) were as follows:

1995 U.S. Tax Ct. LEXIS 2">*11

As of 1981, containers were owned predominantly by leasing companies, and the trend was toward increasing leasing company ownership. A container leasing company provides operating flexibility to ocean carriers by allowing them to pick up and drop off containers in various ports around the world.

During the period 1981 through 1985, the container leasing business was very competitive. Competition in the leasing business was based primarily on leasing rates and service. Service was largely a function of the number of units of equipment and the condition of the equipment available for lease together with the ability to provide flexible pickup and dropoff locations throughout the world. Service also took into account the ability of the lessor to provide containers on demand at pickup and dropoff locations throughout the world. The more locations a lessor had, the more attractive the lessor's service, depending on the needs of the1995 U.S. Tax Ct. LEXIS 2">*12 lessees.

During 1981, Flexi-Van's containers were available from over 230 locations in more than 80 countries and on all six populated continents. Flexi-Van placed special emphasis on worldwide leasing of containers and related equipment. 104 T.C. 13">*19 Approximately 68 to 70 percent of its customers were foreign based. Flexi-Van's equipment pools covered virtually every world trade route. It maintained 40 locations in principal commercial centers in the United States. By the end of 1982, Flexi-Van held approximately a 10-percent share of the world container leasing market.

All of Flexi-Van's containers are suitable for use on voyages to or from the United States as well as on rail, truck, and barge transportation in the United States and other countries. Its containers are designed to comply with, and are certified as complying with, international standards for size, construction, safety, and markings in accordance with international agreements to which the United States is a party. Flexi-Van's containers also meet the safety standards and specifications set out by the Association of American Railroads for containers carried on U.S. railroads and on the highways. 1995 U.S. Tax Ct. LEXIS 2">*13 All or substantially all of the containers are listed in the Intermodal Equipment Register. ⁷

Flexi-Van leases containers under various types of agreements, including leases of 3 years or more, which generally return a substantial portion of the cost of the equipment and related expenses over the term of the lease; leases of less than 3 years, which command higher rates but do not return the full cost of the equipment during the term of the agreement; per diem leases, which command the highest rates; and master lease agreements, under which the lessee guarantees to hire a minimum number of units and in return has the right to pick up and drop off units at designated ports 1995 U.S. Tax Ct. LEXIS 2">*14 around the world.

Flexi-Van's leases do not specify where or on what trade route its leased equipment may be used. The leases do not require the lessee to use the containers in the transportation of property to or from the United States. In the ordinary course of its business, Flexi-Van does not ask its lessees to disclose the location or movement of specific containers while those containers are on lease. Under the lease agreements, however, the lessee agrees to report the location of the equipment if Flexi-Van asks for that information. That lease provision 104 T.C. 13">*32 is intended to enable Flexi-Van to locate its containers should the need arise, such as in the event of a bankruptcy or default of the lessee.

Flexi-Van tracks its equipment primarily through a document called an equipment interchange receipt (EIR). An "on-hire" EIR is executed whenever a lessee takes custody of equipment under a lease. An "off-hire" EIR is executed when the lessee returns the equipment. The EIR identifies the lessee, the lease number, the equipment, the location of the on-hire or off-hire, and the date of the on-hire or off-hire. From these EIR's Flexi-Van can associate the identity of the lessee and1995 U.S. Tax Ct. LEXIS 2">*15 the location where the equipment has been picked up and dropped off.

Flexi-Van maintains reports which show when a container is purchased, its price, the manufacturer, the place of delivery, the lessee, and the date and place where that container has been picked up or dropped off at the commencement or conclusion of a lease and the date the container is added to or deleted from the fixed asset ledger. Other than on-hire and off-hire locations at the commencement or termination of a lease, Flexi-Van's records do not provide information on the movement or use of containers while on lease.

Flexi-Van claimed ITC pursuant to section 38 for all containers added to its fixed asset ledger each year in the applicable Federal corporate income tax return for each of the years 1966 through 1980, except for any year in which the ITC was not in effect. In each return, Flexi-Van reported recapture of the ITC pursuant to section 47 with respect to the containers that were sold, scrapped, lost, or otherwise disposed of during that year, if such disposal occurred before the close of the useful life that was taken into account in computing the ITC (recapture period). Flexi-Van did not report recapture1995 U.S. Tax Ct. LEXIS 2">*16 of ITC or accelerated depreciation for containers which had no lease activity for a period extending over an entire taxable year.

On November 13, 1981, Norfolk entered into an agreement (agreement) with Flexi-Van Leasing, Inc. Norfolk and Flexi-Van intended the agreement to be a safe harbor lease under 104 T.C. 13">*21 section 168(f)(8). ⁸ In substance, under the agreement Norfolk agreed to pay Flexi-Van $ 18,032,147 for all rights to claim ITC and accelerated depreciation deductions relating to certain equipment covered by the agreement. There was no transfer of title or possession of the equipment from Flexi-Van to Norfolk at any time. Under the agreement, Flexi-Van agreed to indemnify Norfolk in the event that the ITC or accelerated depreciation deductions were not allowed by respondent.

1995 U.S. Tax Ct. LEXIS 2">*17 The equipment covered under the agreement consisted of certain containers as well as chassis, trailers, and other property specifically listed in an attachment to the agreement. ⁹1995 U.S. Tax Ct. LEXIS 2">*18 Norfolk and Flexi-Van intended the agreement to include all containers placed in service ¹⁰ by Flexi-Van from January 1 through November 13, 1981, with the exception of (1) any such containers later sold, retired, or otherwise disposed of during 1981, and (2) containers identified to be on lease for 104 T.C. 13">*22 periods of 1 year or longer to shipping companies with no U.S. trade routes as of the date of the agreement. After such deletions, the agreement covered 38,037 containers with a total cost of approximately $ 112,238,384, consisting of approximately 27,000 20-foot containers with an average cost of approximately $ 2,400, approximately 10,500 40-foot containers with an average cost of approximately $ 3,700, and approximately 400 reefers with an average cost of approximately $ 22,500.

All of the containers were of foreign manufacture and were delivered to Flexi-Van in various countries. Approximately 15 percent were delivered to Flexi-Van in the United States. Approximately 98 percent of the containers are standard steel dry van containers.

During the period 1981 through 1985, Flexi-Van leased the containers to more than 675 shipping companies based throughout the world. During those years, many shipping companies1995 U.S. Tax Ct. LEXIS 2">*19 had routes which were connected by either a hub or a triangle. A few shipping companies operated round-the-world services.

For each of the years 1982 through 1985, Flexi-Van reported semiannually to Norfolk the identity and cost of containers that had been lost, stolen, sold, or scrapped during each year so that Norfolk could report recapture of ITC and accelerated depreciation for those containers on the applicable tax return. For purposes of recapture, Flexi-Van did not specifically report to Norfolk the identity of containers that were not on-hire for a period which extended for an entire taxable year.

Pursuant to the agreement, Norfolk claimed ITC of $ 12,346,851 and accelerated depreciation of $ 16,835,758, as well as other tax incidents, relating to the containers in its consolidated Federal income tax return for the year ended December 31, 1981 (1981 return), and accelerated depreciation of $ 24,616,506, $ 23,395,907, $ 23,253,998, and $ 23,110,032, as well as other tax incidents, relating to the containers in its consolidated Federal income tax returns for the years ended December 31, 1982, 1983, 1984, and 1995 U.S. Tax Ct. LEXIS 2">*20 1985, respectively. Included in Norfolk's 1981 Federal income tax 104 T.C. 13">*23 return was a Form 6793, Safe Harbor Lease Information Return, relating to the containers.

Norfolk's 1981 Federal income tax return was audited during 1983 and 1984 by a team of revenue agents headed by Revenue Agent Bernie Justice (Agent Justice) (first audit). The first audit was closed without the assertion of an adjustment relating to the containers. In August 1985, respondent reopened the audit of Norfolk's 1981 return for the purpose of examining further the ITC and other tax benefits Norfolk had claimed in that return relating to the containers (second audit). The second audit followed a telephone conversation that Agent Justice had in February 1985 with Revenue Agent Bernard Cohen (Agent Cohen) concerning Agent Cohen's audit of Flexi-Van relating to the containers. ¹¹

1995 U.S. Tax Ct. LEXIS 2">*21 Agent Cohen had contacted Flexi-Van originally in January 1985 to indicate that he was pursuing an industrywide study of ITC relating to containers and to request a copy of Flexi-Van's Federal corporate income tax returns for the years ended 1981 and 1982. In February 1985, Flexi-Van sent letters to its 100 largest lessees of containers to confirm the movement of those containers. In March 1985, Agent Cohen informed Flexi-Van that the audit of Flexi-Van's Federal corporate income tax return for the year ended December 31, 1981, would be restricted to the question of whether the containers were used in the transportation of property to or from the United States. Agent Cohen also advised Flexi-Van that it would need to establish that the containers qualified for ITC for that year through books and records showing the movements of the containers during the recapture period. Thomas Russo (Russo), Flexi-Van's director of taxes, indicated that Flexi-Van's records basically merely indicated when and where a container was on-hired or off-hired and the name of the customer to whom the container was leased.

104 T.C. 13">*24 During the audit, Russo provided to Agent Cohen information relating to movements1995 U.S. Tax Ct. LEXIS 2">*22 for 3,083, out of a sample of 5,000, of the containers (sampled containers) leased on shortterm leases, such as information from the EIR's of the sampled containers, data from Containerisation International regarding the route structures of the lessees of the sampled containers, and letters from some of those lessees confirming the general utilization of the sampled containers. Other than the on-hire and off-hire information for the sampled containers, Flexi-Van did not provide information which tracked the movements of the containers during the applicable recapture period.

Sometime later, Agent Justice, in connection with his audit of Norfolk's consolidated Federal income tax return for 1981, requested information from Flexi-Van that would detail the activities of all of the containers. Russo provided information showing the on-hire and off-hire locations and dates and the names of the lessees for those containers. Russo did not trace the actual movement of the containers during 1981. Subsequently, Flexi-Van and Norfolk each received revenue agent reports which concluded that they had not shown that the containers qualified as eligible property for purposes of ITC and accelerated1995 U.S. Tax Ct. LEXIS 2">*23 depreciation.

In the notices of deficiency issued to petitioners for the years in issue, respondent determined that petitioners were not entitled to ITC, accelerated depreciation, and other tax incidents relating to the containers for the years in issue on the ground that the agreement did not qualify under the safe harbor lease provisions of section 168(f)(8), because petitioners did not establish that the containers qualified as eligible property for 1981.

Tracing the movements of the individual containers during the period 1981 through 1985 usually would have been impracticable because (1) it would have been disproportionately expensive when compared to the value of the tax benefits permitted under section 38 ¹² or 168(a), (2) it would have 104 T.C. 13">*25 been disproportionately difficult given the numerous world-wide trade routes with multiple termini, and (3) it would have involved the participation of persons other than Flexi-Van, since the containers were under the physical control of shipping company lessees and their customers.

1995 U.S. Tax Ct. LEXIS 2">*24 At the suggestion of its accounting firm for purposes of confirming the ITC claimed for its container fleet during 1972, 1974, and 1977, Flexi-Van sent letters (confirms) asking its lessees about the movement of Flexi-Van's containers during their leases to those lessees. The confirms asked the lessees, among other things, whether the leased containers were used only in transportation to and from the United States, entered the United States at least once each year, or never entered the United States.

During the period 1981 through 1985, the five largest U.S. shipping lines did not routinely trace the movement of individual containers for U.S. container lessors, nor did U.S. container lessors routinely request such tracing. During 1981, those shipping lines generally did not have the capability to trace the movement of individual containers on a routine basis.

The Commissioner audited the Federal corporate income tax returns filed by Flexi-Van for 1966, 1968 through 1973, 1975, and 1976. For those years, the Commissioner did not require Flexi-Van to establish that each container was actually used substantially in the direct transportation of property1995 U.S. Tax Ct. LEXIS 2">*25 to or from the United States in order for that container to qualify for ITC or accelerated depreciation deductions.

During 1980, the Commissioner initiated a technical case study to develop a position with regard to the meaning of the phrase "used * * * to and from the United States" as it relates to section 48(a)(2)(B)(v). ¹³ The technical case study 104 T.C. 13">*26 was closed and subsequently reopened as a revenue ruling project (RR project). A draft revenue ruling was prepared in 1981. The Institute of International Container Lessors (IICL), a trade association, was notified of the RR project during October 1981. Representatives of the IICL met with representatives of the Internal Revenue Service (IRS) in January 1982 to provide information about the container leasing industry. In May 1982, the IICL submitted to the IRS a memorandum entitled "Containers and the Investment Tax Credit". The RR project was closed in 1982 without the publication of a revenue ruling.

Reliance Group Holdings, Inc. (Reliance), ¹⁴ through its wholly owned subsidiary CTI International, Inc. (CTI), ¹⁵ was involved in the leasing of containers for the years 1968 through 1980. CTI claimed ITC on all the containers it placed in service during each year from 1974 through 1979.

In connection with an audit of Reliance's consolidated Federal income tax return for the year ended 1980 (1980 return), the revenue agent assigned to that audit reviewed CTI's entitlement to ITC totaling $ 36,498,990, utilized by Reliance in its 1980 return as a result of containers1995 U.S. Tax Ct. LEXIS 2">*27 placed in service in taxable years 1974 through 1979. The revenue agent proposed to disallow all the ITC with respect to those containers on the grounds that CTI did not maintain records which would specifically identify which containers reached a U.S. port. The audit of Reliance's tax returns for the 1980 year resulted from a memorandum dated April 6, 1984, prepared by Agent Cohen. See infra p. 29. CTI was included in the list of corporations referenced in that memorandum.

In response to the revenue agent's proposal to disallow all the ITC relating to its containers, Reliance requested in July 1987 that the IRS Appeals officer assigned to its case seek 104 T.C. 13">*27 technical advice from the IRS National Office in Washington, D.C. (National Office), regarding certain issues of law relating to Reliance's entitlement to ITC for containers claimed in Reliance's 1980 return. The request for technical advice was forwarded to the National Office on or before November 4, 1987.

During the National Office's consideration of that request for technical advice, Reliance and other container lessors, including Flexi-Van, submitted material to the IRS regarding the container leasing business. 1995 U.S. Tax Ct. LEXIS 2">*28 In addition, the National Office sought information from within the IRS regarding the audit history of containers and their eligibility for ITC.

In response to CTI's request for technical advice and the material submitted by CTI, Flexi-Van, and others, the Commissioner issued Rev. Rul. 90-9, 1990-1 C.B. 46, ¹⁶Rev. Proc. 90-10, 1990-1 C.B. 467, ¹⁷ and Tech. Adv. Mem. 90-45-001 (May 3, 1990).

Respondent does not know whether any of her revenue agents required any other container lessor to provide evidence that its containers were used substantially in the transportation of property to or from the United States.

Transamerica Corp. ¹⁸

Transamerica ICS, Inc., ¹⁹ was a competitor of Flexi-Van during the years in issue. During 1981, Transamerica was 104 T.C. 13">*28 the third largest lessor of containers. Transamerica offered long-term leases, short-term leases, per diem leases, and master lease agreements to its customers.

1995 U.S. Tax Ct. LEXIS 2">*30 Sometime before July 1979, an IRS agent audited Transamerica's Federal corporate income tax returns for the years ended 1972 through 1974. For those years, the Commissioner disallowed ITC claimed on a portion of the containers Transamerica had placed in service during those years pursuant to a formula related to the time of year when such containers were placed in service. No ITC was allowed for containers placed in service late in the year on the ground that it was unlikely that those containers had carried property to the United States before the close of the tax year.

During 1982 and 1983, Agent Cohen along with other IRS agents audited Transamerica's Federal corporate income tax returns for the years ended 1979 and 1980. As part of that audit Agent Cohen examined ITC carryforwards Transamerica claimed from the tax years ended 1975 through July 1979. As a result of that audit, the Commissioner disallowed a portion of the ITC Transamerica had claimed with respect to containers placed in service in each of the years ended 1975 through 1980. The portion of the ITC disallowed was determined using a methodology based on Transamerica'a internal records and information published in1995 U.S. Tax Ct. LEXIS 2">*31 the Containerisation International Yearbook relating to the ratio of containers handled in U.S. ports to the containers handled on a worldwide basis. ²⁰ In arriving at the allowable ITC for 104 T.C. 13">*29 containers placed in service during the years ended 1975 through 1980, Agent Cohen did not require Transamerica to trace the actual routes that the containers traveled during those years.

1995 U.S. Tax Ct. LEXIS 2">*32 Following the audit of Transamerica's returns for the years ended 1979 and 1980, Agent Cohen prepared a memorandum dated April 6, 1984, under the name of the Chief, Examination Division of the Manhattan District of the IRS to the Assistant Regional Commissioner (the April 6 memorandum). The April 6 memorandum states in pertinent part as follows:

In conjunction with a support audit examination we developed a significant issue relative to the investment tax credits.

Taxpayer, a large corporation, leases containers to the shipping industry. Taxpayer deducted large amounts for the investment tax credit on its return. The investment tax credits do not flow through to the lessees, but are claimed by taxpayer.

These containers are purchased overseas by the taxpayer and picked up by the lessees in the country of manufacture.

In order to be eligible for the investment tax credit, the containers must reach a United States port in accordance with Sections 46 and 48 of the Internal Revenue Code and the related regulations and revenue rulings.

Taxpayer stated that the containers are fungible goods and could not specifically identify which containers reached a United States port. 1995 U.S. Tax Ct. LEXIS 2">*33 The audit resulted in a large agreed adjustment to the investment tax credit.

The taxpayer stated that the industry uses the same method for deducting the investment tax credit. Enclosed is a list of corporations in the container leasing business. An examination of these entities should result in large I.T.C. adjustments.

Copies of the April 6 memorandum were sent to other IRS regional offices in the United States.

During 1981, Transamerica entered into safe harbor lease arrangements with respect to containers placed in service in 1981 that Transamerica calculated would qualify for ITC based on the methodology used for the prior audit to determine the allowable ITC for the years ended 1975 through 1980. Transamerica did not include in any safe harbor lease, nor did it claim ITC, for the remaining containers it placed in service during 1981.

During 1983 and 1984, Agent Cohen along with other IRS agents audited Transamerica's Federal corporate income tax 104 T.C. 13">*30 returns for the years ended 1981 and 1982. During that audit Agent Cohen again used the methodology employed to determine the allowable ITC for the years ended 1975 through 1980 to determine the portion of the containers1995 U.S. Tax Ct. LEXIS 2">*34 placed in service during 1981 and 1982 that would qualify for ITC. In addition, the IRS separately applied that same methodology in the audit of the tax return for the year ended 1981 of one of the parties with whom Transamerica had entered into a safe harbor lease to determine the allowable ITC claimed by that party relating to the containers covered under that safe harbor lease arrangement.

During 1986 through 1988, Agent Cohen and another IRS agent audited Transamerica for the years ended 1983 and 1984. At the beginning of that audit, Agent Cohen informed John Mohr, Transamerica's vice president for taxes, that Agent Cohen had been advised by his superiors to disallow ITC on any container that Transamerica could not show by specific records had been used to ship property to and from the United States, because Flexi-Van had declined to follow the settlement formula used by the IRS and Transamerica to determine the allowable ITC for the years ended 1975 through 1980. Transamerica could not produce such records. As a result, the Commissioner disallowed all of the ITC relating to containers Transamerica had placed in service during 1983 and 1984. The Commissioner also disallowed 1995 U.S. Tax Ct. LEXIS 2">*35 all of the ITC relating to containers placed in service during 1985 and 1986.

Transamerica filed petitions in this Court for redeterminations of the Commissioner's determinations of tax deficiencies for the years 1975 through 1980 and 1986 through 1988. ²¹ During the pendency of those cases, the IRS promulgated Rev. Rul. 90-9, 1990-1 C.B. 46, and Rev. Proc. 90-10, 1990-1 C.B. 467. In response to the promulgation of Rev. Rul. 90-9, Transamerica developed information specific to its own containers and applicable to its entire fleet for the years 1975 through 1986 by statistical methodology. Thereafter, following negotiations, Transamerica and the IRS agreed to settle the ITC issue relating to those containers generally under the following terms:

1995 U.S. Tax Ct. LEXIS 2">*36 104 T.C. 13">*31 (1) For containers placed in service during the years ended 1975 through 1982, allowable ITC would be determined under the terms of the agreements previously reached between Transamerica and the IRS.

(2) For containers placed in service during the years ended 1983 through 1986, allowable ITC would be determined essentially under the provisions contained in Rev. Rul. 90-9.

XTRA, Inc.²²

During 1981, XTRA, Inc. (XTRA), was the seventh largest container lessor in the world. XTRA competed with Flexi-Van during the years in issue.

XTRA generally claimed ITC and accelerated depreciation on all containers it placed in service. It generally claimed recapture of ITC only for those containers that were lost, 1995 U.S. Tax Ct. LEXIS 2">*37 sold, or destroyed within the recapture period.

The IRS audited XTRA for 1970, 1974, 1975, and 1976. No adjustments were made as a result of those audits to the ITC or accelerated depreciation that XTRA had claimed relating to the containers.

On November 13, 1981, XTRA entered into a safe harbor lease agreement with Thermo Electron Corp. (Thermo Electron) under which XTRA sold all of the Federal tax benefits relating to certain equipment, including containers. During 1983, the IRS audited Thermo Electron for the fiscal years ended June 30, 1979, June 30, 1980, June 30, 1981, December 31, 1981, and December 31, 1982. During that audit, a revenue agent assigned to the audit asked Thermo Electron to substantiate, among other things, that the containers included in that safe harbor lease agreement were used in the transportation of property to and from the United States. In a letter dated December 29, 1983, from the assistant corporate controller of XTRA forwarding data to Thermo Electron relating to that substantiation request, XTRA represented, among other things, that

The question of whether our containers are used in the transportation of property to and from the United States has1995 U.S. Tax Ct. LEXIS 2">*38 arisen before in connection with the regular audit of our tax return by the IRS. In order to respond 104 T.C. 13">*32 to this question in the past we have sent letters to our customers asking them to confirm that the XTRA units on lease to them were used in the above described manner. We have historically had difficulty getting responses from the lessees and the process is a time consuming effort. Despite this situation, and the length of time involved in getting responses, we have been able to satisfy the IRS on this issue in the past.

XTRA's assistant corporate controller also represented to Thermo Electron that XTRA had selected data relating to a sampling of 574 units, which represented approximately 10 percent, of the containers subject to the safe harbor lease that were still in existence at the time of the sampling. As reported by XTRA, the data reflected that 31 units were in the United States but not leased throughout 1982, 2 units were outside the United States but not leased throughout 1982, and 541 units were on lease to water-carrier customers during that year. XTRA further indicated that 60 percent of those 541 units were leased during 1982 to two companies which had extensive1995 U.S. Tax Ct. LEXIS 2">*39 business in the United States and the remaining units of those 541 units were leased to approximately 60 customers. XTRA also provided the names of the water-carrier customers to whom the 541 containers were leased during 1982. Neither Thermo Electron nor XTRA provided further information relating to the movement of the containers covered under the safe harbor lease arrangement between those two companies. The Commissioner did not adjust the ITCThermo Electron claimed relating to those containers.

OPINION

For 1981, section 38 provides a credit against tax for qualifying tangible property used in a trade or business or held for the production of income and having a useful life of 3 years or more at the time the property is placed in service, but only if depreciation is allowable with respect to that property (section 38 property). Sec. 48(a)(1)(A). ²³ The determination 104 T.C. 13">*33 of whether property qualifies as section 38 property must be made with respect to the year in which the property is placed in service. Sec. 1.46-3(d)(4)(i), Income Tax Regs.; see World Airways, Inc. v. Commissioner, 62 T.C. 786">62 T.C. 786, 62 T.C. 786">809 (1974), affd. 564 F.2d 886">564 F.2d 886 (9th Cir. 1977).1995 U.S. Tax Ct. LEXIS 2">*40 Even if property qualifies initially for ITC for the year in which it is placed in service, that ITC must be recaptured if the property is later disposed of or otherwise ceases to be eligible for ITC before the end of the recapture period. Sec. 47.

1995 U.S. Tax Ct. LEXIS 2">*41 Section 48(a)(2)(A) moreover provides that property does not qualify as section 38 property if during the taxable year it is used predominantly outside the United States. ²⁴1995 U.S. Tax Ct. LEXIS 2">*42 Certain types of property used in commerce between the United States and foreign countries, however, qualify as section 38 property even if used predominantly outside the United States. Sec. 48(a)(2)(B). ²⁵1995 U.S. Tax Ct. LEXIS 2">*43 Thus, for example, under section 104 T.C. 13">*34 48(a)(2)(B)(v), a container used predominantly outside the United States nevertheless qualifies for ITC if it is owned by a U.S. person and is "used in the transportation of property to and from the United States" (the container exception). ²⁶ The regulation explaining the container exception merely repeats the statutory language. Sec. 1.48-1(g)(2)(v), Income Tax Regs.²⁷

In Rev. Rul. 90-9, 1990-1 C.B. 46, however, the Commissioner concluded that to meet the container exception "a cargo container must be used substantially in the direct transportation of property to or from the United States during each taxable year of its recovery period." Id., 1990-1 C.B. at 47.1995 U.S. Tax Ct. LEXIS 2">*44 Pursuant to that revenue ruling, direct transportation for purposes of the container exception "consists of the transportation of property by the container with the United States as the origin or terminus of the trip for the container and the property." Id. The Commissioner did not limit prospectively the applicability of Rev. Rul. 90-9. Id.

We first decide, in the context of section 48(a)(2)(B)(v), what Congress intended by the phrase "used in the transportation of property". The parties attempt to support their positions with numerous arguments, the more significant of which will be discussed below.

Petitioners contend that under section 48(a)(2)(B)(v) a container is used in the transportation of property to or from the United States if the container merely is made available for such use, whether or not the container is ever actually used 104 T.C. 13">*35 to transport property to or from the United States. Petitioners anchor their position on the argument that under long-standing case law property does not have to be actually used in a particular trade or business to be eligible for depreciation or ITC but1995 U.S. Tax Ct. LEXIS 2">*45 only must be made available for such use. Petitioners argue that under such case law the term "used" does not refer to actual use and, therefore, if Congress had intended to require actual use in section 48(a)(2)(B)(v), it would have employed the word "actually" in conjunction with the word "used" as it did in other sections of the Internal Revenue Code (Code), citing, as examples, sections 971(d)(2) and 464(a) for instances when Congress employed the phrase "actually used", section 162(a)(1) for the phrase "actually rendered", and section 175(b) for the phrase "actually paid". Petitioners argue further that there is no evidence that Congress intended the word "used" to have one meaning in section 167(a)(1) and another in section 48(a)(2)(B)(v). Consequently, petitioners contend, the containers are eligible section 38 property because they were made available for use, should the occasion arise, in the transportation of property to or from the United States when, as part of Flexi-Van's ongoing business, the containers were added to its fleet in 1981 and offered without restriction to shipping companies engaged in international commerce.

Respondent disagrees with petitioners' interpretation1995 U.S. Tax Ct. LEXIS 2">*46 of the container exception and asserts that actual use is intended under the container exception. She argues that petitioners have cited no authority which establishes that the word "used" has, or in 1962 had, a fixed meaning in Federal income tax law that did not require some actual use. Respondent contends that the word "used" must be understood in the context of the phrase "in the transportation of property to or from the United States". Respondent asserts that petitioners' interpretation of "used" as "available for use" denies the explicit requirement of the container exception that a container have some nexus with the United States.

Respondent contends further that, had Congress wanted containers and other property to qualify under the container exception without any showing that the property had some minimum contact with the United States, Congress easily could have said so, but it did not. Respondent asserts that 104 T.C. 13">*36 her position on the container exception, as stated in Rev. Rul. 90-9, supra, was motivated by the legislative purpose for ITC. Respondent contends that the mere possibility that 1995 U.S. Tax Ct. LEXIS 2">*47 a container may transport property to or from the United States sometime during the recapture period is insufficient to satisfy the container exception, because the purpose of the ITC is not furthered unless the container actually transports property to or from the United States. We agree in substance with respondent.

We begin our analysis with the presumption that respondent's determination as to petitioners' tax liability is correct, and petitioners have the burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111">290 U.S. 111, 290 U.S. 111">115 (1933); Dellacroce v. Commissioner, 83 T.C. 269">83 T.C. 269, 83 T.C. 269">279-280 (1984). Moreover, since deductions and credits are a matter of legislative grace, petitioners bear the burden of proving entitlement to any deduction or credit claimed on their returns. INDOPCO, Inc. v. Commissioner, 503 U.S. 79">503 U.S. 79 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435, 292 U.S. 435">440 (1934).

In construing a statute courts generally seek the plain and literal meaning of its language. United States v. Locke, 471 U.S. 84">471 U.S. 84, 471 U.S. 84">93, 471 U.S. 84">95-96 (1985);1995 U.S. Tax Ct. LEXIS 2">*48 United States v. American Trucking Associations, Inc., 310 U.S. 534">310 U.S. 534, 310 U.S. 534">543 (1940). For that purpose, courts generally assume "'that Congress uses common words in their popular meaning, as used in the common speech of men.'" Commissioner v. Groetzinger, 480 U.S. 23">480 U.S. 23, 480 U.S. 23">28 (1987) (quoting Frankfurter, "Some Reflection on the Reading of Statutes", 47 Colum. L. Rev. 527, 536 (1947)); see also Addison v. Holly Hill Fruit Prods., Inc., 322 U.S. 607">322 U.S. 607, 322 U.S. 607">618 (1944) ("After all, legislation when not expressed in technical terms is addressed to the common run of men and is therefore to be understood according to the sense of the thing, as the ordinary man has a right to rely on ordinary words addressed to him."). ²⁸ Moreover, words in a revenue act generally are interpreted in their "'ordinary, everyday senses'". Commissioner v. Soliman, 506 U.S. ___, 113 S. Ct. 701">113 S. Ct. 701, 113 S. Ct. 701">705-706 (1993) (quoting Malat v. Riddell, 383 U.S. 569">383 U.S. 569, 383 U.S. 569">571 (1966) (quoting Crane v. Commissioner, 331 U.S. 1">331 U.S. 1, 331 U.S. 1">6 (1947)));1995 U.S. Tax Ct. LEXIS 2">*49 see also Helvering v. Horst, 311 U.S. 112">311 U.S. 112, 311 U.S. 112">118 (1940)104 T.C. 13">*37 ("Common understanding and experience are the touchstones for the interpretation of the revenue laws.").

Words with a fixed legal or judicially settled meaning, on the other hand, generally must be presumed to have been used in that sense, unless such an interpretation will lead to absurd results. See United States v. Merriam, 263 U.S. 179">263 U.S. 179, 263 U.S. 179">187 (1923); Lenz v. Commissioner, 101 T.C. 260">101 T.C. 260, 101 T.C. 260">265 (1993). We must rely on the words of the statute as generally understood, for to do otherwise would be to redraft the statute. 471 U.S. 84">United States v. Locke, supra at 93, 95-96; 101 T.C. 260">Lenz v. Commissioner, supra at 265 (citing 310 U.S. 534">United States v. American Trucking Associations, Inc., supra at 542-543).1995 U.S. Tax Ct. LEXIS 2">*50

Our principal objective in interpreting any statute is to determine Congress' intent in using the statutory language being construed. 310 U.S. 534">United States v. American Trucking Associations, Inc., supra at 542; Helvering v. Stockholms Enskilda Bank, 293 U.S. 84">293 U.S. 84, 293 U.S. 84">93-94 (1934); General Signal Corp. & Subs. v. Commissioner, 103 T.C. 216">103 T.C. 216, 103 T.C. 216">240 (1994). Moreover, where the statute is ambiguous, we may look to its legislative history and to the reason for its enactment. 310 U.S. 534">United States v. American Trucking Associations, Inc., supra at 543-544; U.S. Padding Corp. v. Commissioner, 88 T.C. 177">88 T.C. 177, 88 T.C. 177">184 (1987), affd. 865 F.2d 750">865 F.2d 750 (6th Cir. 1989). In addition, we may seek out any reliable evidence as to the legislative purpose even where the statute is clear. 310 U.S. 534">United States v. American Trucking Associations, Inc., supra;Centel Communications Co. v. Commissioner, 92 T.C. 612">92 T.C. 612, 92 T.C. 612">628 (1989), affd. 920 F.2d 1335">920 F.2d 1335 (7th Cir. 1990). As the Supreme Court1995 U.S. Tax Ct. LEXIS 2">*51 summarized in Commissioner v. Engle, 464 U.S. 206">464 U.S. 206, 464 U.S. 206">217 (1984):

Our duty then is "to find that interpretation which can most fairly be said to be imbedded in the statute, in the sense of being most harmonious with its scheme and with the general purposes that Congress manifested." NLRB v. Lion Oil Co., 352 U.S. 282">352 U.S. 282, 352 U.S. 282">297 (1957) (Frankfurter, J., concurring in part and dissenting in part). The circumstances of the enactment of particular legislation may be particularly relevant to this inquiry, Watt v. Alaska, 451 U.S. 259">451 U.S. 259, 451 U.S. 259">266 (1981), * * *

With these general principles in mind, we turn to the question at hand; i.e., in the container exception, what did Congress intend by the phrase "used in the transportation of property to and from the United States"? Petitioners focus on the word "used" for their interpretation of the container 104 T.C. 13">*38 exception. They assert in essence that, when employed in the Code, the word "used" means "available for use should the occasion arise" unless Congress also utilizes the word "actually" in conjunction with the word "used".

The Code does not define the word1995 U.S. Tax Ct. LEXIS 2">*52 "used". Petitioners, however, contend that under longstanding case law the word "used" does not refer to actual use. For their position petitioners rely on P. Dougherty Co. v. Commissioner, 159 F.2d 269">159 F.2d 269 (4th Cir. 1946), affg. 5 T.C. 791">5 T.C. 791 (1945); Kittredge v. Commissioner, 88 F.2d 632">88 F.2d 632 (2d Cir. 1937), affg. 34 B.T.A. 1314">34 B.T.A. 1314 (1936) (order); Waddell v. Commissioner, 86 T.C. 848">86 T.C. 848, 86 T.C. 848">897-898 (1986), affd. per curiam 841 F.2d 264">841 F.2d 264 (9th Cir. 1988); Piggly Wiggly S., Inc. v. Commissioner, 84 T.C. 739">84 T.C. 739 (1985), affd. on another issue 803 F.2d 1572">803 F.2d 1572 (11th Cir. 1986); Helfand v. Commissioner, T.C. Memo. 1984-102; Kent v. Commissioner, a Memorandum Opinion of this Court dated Dec. 31, 1953; Yellow Cab Co. v. Driscoll, 24 F. Supp. 993">24 F. Supp. 993 (W.D. Pa. 1938). Petitioners argue that Congress was aware of the fixed judicial meaning for the word "used" when it drafted section 48(a)(2)(B)(v), and Congress therefore must have1995 U.S. Tax Ct. LEXIS 2">*53 intended the phrase "used in the transportation of property" to mean "available to be used in the transportation of property should the occasion arise".

Respondent counters that some of the cases petitioners rely on to establish their position that the term "used" means merely "available for such use" (e.g., 88 F.2d 632">Kittredge v. Commissioner, supra;159 F.2d 269">P. Dougherty Co. v. Commissioner, supra) were decided under section 167(a)(1) or its predecessors and are not applicable to cases arising under section 48(a)(2)(B). Respondent also asserts that other cases on which petitioners rely (e.g., 86 T.C. 848">Waddell v. Commissioner, supra;84 T.C. 739">Piggly Wiggly S., Inc. v. Commissioner, supra) are not applicable to the instant cases, which involve a specific exception to the general provision denying ITC for property used predominantly outside the United States, because those cases arose under section 48(a)(1) and deal with the question of when property was placed in service for purposes of eligibility for depreciation and ITC. We agree with respondent that there is no fixed judicial meaning for the word 1995 U.S. Tax Ct. LEXIS 2">*54 "used" in the tax arena.

The cases on which petitioners rely for their position do not define the word "used", but rather interpret the phrases "used in a trade or business" or "placed in service". The 104 T.C. 13">*39 phrase "used in a trade or business" has been defined as "equivalent to 'devoted to the trade or business'; that is to say, that property once used in the business remains in such use until it is shown to have been withdrawn from business purposes." 88 F.2d 632">Kittredge v. Commissioner, supra at 634; see also 159 F.2d 269">P. Dougherty Co. v. Commissioner, supra at 271 (for purposes of determining whether depreciation was allowable for years when barges lay idle for protracted periods during a 20-year period of time, it was sufficient that they were kept in usable condition and were ready for use should the occasion arise; i.e., they were devoted to the trade or business); Clairmont v. Commissioner, 64 T.C. 1130">64 T.C. 1130, 64 T.C. 1130">1136 (1975) (explaining the so-called idle asset rule which holds that depreciation deductions are available in situations where the asset involved, while not in actual use during the year in issue, 1995 U.S. Tax Ct. LEXIS 2">*55 was nevertheless devoted to the business of the taxpayer and ready for use should the occasion arise). Similarly, an asset generally is "placed in service" for depreciation purposes when it is in a condition or state of readiness and available for a specifically assigned function. See 84 T.C. 739">Piggly Wiggly S., Inc. v. Commissioner, supra at 746; sec. 1.167(a)-11(e)(1)(i), Income Tax Regs. Under petitioners' theory, the word "used" has an equivalent meaning in the revenue laws unless modified by the word "actually". We believe that petitioners' position goes too far.

We have found no cases, and petitioners have cited none, where the word "used" was found to have a fixed meaning. We do not agree with petitioners that, because in some sections of the Code Congress employed the phrase "actually used", actual use is never intended unless the word "used" is modified by the word "actually". The word "used" should be given its common and ordinary meaning, unless persuasive evidence or context indicates otherwise. Cf. Commissioner v. Brown, 380 U.S. 563">380 U.S. 563, 380 U.S. 563">570-571 (1965) ("A 'sale,' however, is a common event in the non-tax world; and since1995 U.S. Tax Ct. LEXIS 2">*56 it is used in the Code without limiting definition and without legislative history indicating a contrary result, its common and ordinary meaning should at least be persuasive of its meaning as used in the Internal Revenue Code."). In common usage, the word "used" means put into action or service; employed. See Webster's Third New International Dictionary 104 T.C. 13">*40 (1981). ²⁹ We conclude that there is no evidence that Congress had in mind a fixed meaning for the word "used", as is advocated by petitioners, in the container exception when Congress enacted section 48(a)(2)(B)(v).³⁰

1995 U.S. Tax Ct. LEXIS 2">*57 Although we reject petitioners' position that the word "used" has a fixed judicial meaning, the question still remains whether, in utilizing the phrase "used in the transportation of property to and from the United States" in section 48(a)(2)(B)(v), Congress intended to extend ITC and accelerated depreciation benefits to containers that, while not employed to transport property to or from the United States during the taxable year in which they were placed in service, might be used for that purpose sometime in the future. In our view, Congress did not.

The meaning of words in a statute ordinarily is derived from their context. Deal v. United States, 508 U.S. ___, 113 S. Ct. 1993">113 S. Ct. 1993, 113 S. Ct. 1993">1996 (1993). Therefore, in interpreting the meaning of section 48(a)(2)(B)(v), we do not focus on one word as petitioners have done, for to do so runs the risk of distorting the statute's true meaning. See United States Natl. Bank v. Independent Ins. Agents, 508 U.S. ___, 113 S. Ct. 2173">113 S. Ct. 2173, 113 S. Ct. 2173">2182 (1993); Richards v. United States, 369 U.S. 1">369 U.S. 1, 369 U.S. 1">11 (1962); Mastro Plastics Corp. v. NLRB, 350 U.S. 270">350 U.S. 270, 350 U.S. 270">285 (1956).1995 U.S. Tax Ct. LEXIS 2">*58 As the Court of Appeals for the Seventh Circuit recently cautioned:

there is no principle of interpretation that if the meaning of a word, phrase, or sentence plucked out of the heart of a statute seems clear if you do not read or think beyond it you must accept this as the meaning of the statute. On the contrary, taking a word, a phrase, or a sentence out of context is as great a sin in statutory interpretation as it is in ordinary argument. "Slicing a statute into phrases while ignoring their contexts--the surrounding words, the setting of the enactment, the function a phrase serves in the statutory structure--is a formula for disaster." Herrmann v. Cencom Cable Associates, Inc., 978 F.2d 978">978 F.2d 978, 978 F.2d 978">982 (7th Cir. 1992). But there is context and there is context. Surrounding sentences are context for 104 T.C. 13">*41 interpreting a sentence, but so is the history behind the sentence, where the sentence came from, what problem it was written to solve, who drafted it, who opposed its inclusion in the statute. [Sundstrand Corp. v. Commissioner, 17 F.3d 965">17 F.3d 965, 17 F.3d 965">967 (7th Cir. 1994), affg. 98 T.C. 518">98 T.C. 518 (1992); 1995 U.S. Tax Ct. LEXIS 2">*59 citations omitted.]

Moreover, although identical words in different sections may mean identical things, Commissioner v. Keystone Consol. Indus., Inc., 508 U.S. ___, 113 S. Ct. 2006">113 S. Ct. 2006, 113 S. Ct. 2006">2011-2012 (1993), the way a word is employed in one section of a statute does not necessarily establish its meaning in some other section. See Dewsnup v. Timm, 502 U.S. 410">502 U.S. 410, ___, 112 S. Ct. 773">112 S. Ct. 773, 112 S. Ct. 773">778 (1992); District of Columbia v. Carter, 409 U.S. 418">409 U.S. 418, 409 U.S. 418">421 (1973); Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427">286 U.S. 427, 286 U.S. 427">433 (1932); Calderon v. Witvoet, 999 F.2d 1101">999 F.2d 1101, 999 F.2d 1101">1104 (7th Cir. 1993). "It is not unusual for the same word to be used with different meanings in the same act, and there is no rule of statutory construction which precludes the courts from giving to the word the meaning which the legislature intended it should have in each instance." 286 U.S. 427">Atlantic Cleaners & Dyers, Inc. v. United States, supra at 433; see also Helvering v. Stockholms Enskilda Bank, 293 U.S. 84">293 U.S. at 87.1995 U.S. Tax Ct. LEXIS 2">*60

Thus, to determine the meaning of section 48(a)(2)(B)(v), in addition to the words themselves, we must consider the context, the purposes of the law, and the circumstances under which the words were employed. See Shell Oil Co. v. Iowa Dept. of Revenue, 488 U.S. 19">488 U.S. 19 (1988); Puerto Rico v. Shell Co., 302 U.S. 253">302 U.S. 253, 302 U.S. 253">258 (1937); 293 U.S. 84">Helvering v. Stockholms Enskilda Bank, supra at 87, 89, 93-94. Furthermore, we must view the statute in context as a whole and with a view to its place in the overall statutory scheme. King v. St. Vincent's Hosp., 502 U.S. 215">502 U.S. 215, 502 U.S. 215">221 (1991); Stanford v. Commissioner, 297 F.2d 298">297 F.2d 298, 297 F.2d 298">308 (9th Cir. 1961). Consequently, the various subsections of section 48 must be construed, if possible, as consistent and interrelated parts of a single statutory scheme. See Davis v. Michigan Dept. of Treasury, 489 U.S. 803">489 U.S. 803, 489 U.S. 803">809 (1989); United States v. California Portland Cement Co., 413 F.2d 161">413 F.2d 161, 413 F.2d 161">164 (9th Cir. 1969).

The ITC provisions initially were added to the Code1995 U.S. Tax Ct. LEXIS 2">*61 by the Revenue Act of 1962, Pub. L. 87-834, sec. 2, 76 Stat. 960, 962. Congress intended the investment credit as a stimulus to encourage capital investment by reducing the net cost of acquiring some assets. See Zuanich v. Commissioner, 77 T.C. 428">77 T.C. 428, 77 T.C. 428">461104 T.C. 13">*42 (1981) (Goffe, J., concurring in part and dissenting in part). Regarding the anticipated economic effect of the investment tax credit, the report of the Senate Finance Committee states the following:

The objective of the investment credit is to encourage modernization and expansion of the Nation's productive facilities and thereby improve the economic potential of the country, with a resultant increase in job opportunities and betterment of our competitive position in the world economy. The objective of the credit is to reduce the net cost of acquiring new equipment; this will have the effect of increasing the earnings of new facilities over their productive lives and increasing the profitability of productive investment. It is your committee's intent that the financial assistance represented by the credit should itself be used for new investment, thereby further advancing the economy. Only1995 U.S. Tax Ct. LEXIS 2">*62 in this way will the investment credit fully serve the overall national interest in greater productivity, a healthy and sustained economic growth, and a better balance in international payments. [S. Rept. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707, 717-718].

The reports of both the House Ways and Means Committee, H. Rept. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 405, 411, 412, and the conference committee, H. Conf. Rept. 2508, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 1129, 1142, on the Revenue Act of 1962 are consistent with the above-quoted language.

Not all property qualified for the investment credit. Congress defined generally the property eligible for the investment credit in paragraph 1 of section 48(a), but in other paragraphs of that section specifically excluded particular categories of property from the benefits of ITC, for example, property used for lodging, sec. 48(a)(3), property used by certain tax-exempt organizations, sec. 48(a)(4), property used by governmental units, sec. 48(a)(5), as well as property used predominantly outside of the United States, sec. 48(a)(2)(A). 1995 U.S. Tax Ct. LEXIS 2">*63 The committee reports provided only a minimal explanation of Congress' intent relating to the exclusion from section 38 property of property used predominantly outside the United States and the limited exceptions to that exclusion. In that regard, H. Rept. 1447, supra, 1962-3 C.B. at 416, and S. Rept. 1881, supra, 1962-3 C.B. at 723, state as follows:

(4) Property used predominantly outside of the United States. However, there are certain exceptions where this type of property is eligible for the credit, namely, in the case of domestically owned aircraft, rolling stock of 104 T.C. 13">*43 railroads, vessels and motor vehicles, where the use is partially within and partially without the United States. Similarly, an exception is made for domestically owned containers which are used in the transportation of property to or from the United States. A further exception is made for domestically owned property used in exploring for, developing, removing, or transporting natural resources from the outer Continental Shelf of the United States. Property used predominantly outside of the United States (with the exceptions noted) is omitted, 1995 U.S. Tax Ct. LEXIS 2">*64 since the primary purpose of the credit is to encourage investment within the United States.

H. Rept. 1447, supra, 1962-3 C.B. at 517, and S. Rept. 1881, supra, 1962-3 C.B. at 860, describe property used predominantly outside of the United States as follows:

The term "predominantly outside the United States" means that the property must be physically located outside the United States more than 50 percent of the time during any one taxable year. Thus, if property is originally placed in service in the United States and a credit is received on such property, but such property is thereafter in any one year used predominantly outside the United States, such property ceases to be section 38 property with respect to the taxpayer who obtained the credit, regardless of the fact that the property is later returned to the United States. Furthermore, if property is originally placed in service by the taxpayer outside the United States and is used predominantly outside the United States during the taxable year originally placed in service, such property cannot qualify as section 38 property with respect to such taxpayer.

Thus, 1995 U.S. Tax Ct. LEXIS 2">*65 it appears that Congress believed that property described in section 48(a)(2)(B) could stimulate the U.S. economy even though used outside of the United States more than 50 percent of the time during the taxable year if the property was employed in the prescribed manner. Congress consequently extended ITC for "aircraft, rolling stock of railroads, vessels and motor vehicles, where the use is partially within and partially without the United States", "containers which are used in the transportation of property to or from the United States", and "property used in exploring for, developing, removing, or transporting natural resources from the outer Continental Shelf of the United States" even though used predominantly outside of the United States because that property "[encouraged] investment within the United States."

Petitioners accede to an actual use requirement for aircraft, vessels, and motor vehicles, on the basis that the applicable subparagraph of section 48(a)(2)(B) utilizes the 104 T.C. 13">*44 word "operated" rather than the word "used" in specifying the particular requirements for compliance with the specific exception. See sec. 48(a)(2)(B)(i), (iii), (iv). Petitioners assert 1995 U.S. Tax Ct. LEXIS 2">*66 that it is more logical and practical to apply an actual use test to aircraft, vessels, and motor vehicles, because those types of equipment typically move more rapidly and frequently than containers. Petitioners thus contend in essence that in the applicable exceptions for aircraft, vessels, and motor vehicles Congress deliberately utilized the term "operated" instead of the term "used" to distinguish usage requirements for containers from usage requirements for aircraft, vessels, and motor vehicles.

Respondent counters that petitioners have cited no reason expressed by Congress in 1962 for requiring some types of property under section 48(a)(2)(B) to be actually used but not other types of property. Respondent contends that Congress used different words because the types of property are different, not because the inquiry is different. According to respondent, each of the exceptions looks to actual use of the applicable property because use measures the benefit to investment in the United States. Respondent posits that for purposes of section 48(a)(2)(B) the words "used" and "operated" do not have different meanings. We agree with respondent.

In our view, Congress merely tailored1995 U.S. Tax Ct. LEXIS 2">*67 the language of the exceptions enumerated in section 48(a)(2)(B) to fit the type of equipment being addressed. For purposes of section 48(a)(2)(B), we see no meaningful difference between the word "used" and the word "operated". As we understand the applicable legislative history, with the ITC provisions Congress intended to foster U.S. economic growth by encouraging investment in property that would be used principally in the United States. Congress, however, believed that certain specified equipment nonetheless could contribute to the U.S. economy even though used predominantly outside of United States. In section 48(a)(2)(B)Congress attempted to define the minimum contact with the United States that equipment must have to qualify as section 38 property. See McCarty v. Commissioner, T.C. Memo. 1987-254 (interpreting the vessel exception under section 48(a)(2)(B)(iii)). The committee reports succinctly state that "any container of a United States person which is used in the transportation of property 104 T.C. 13">*45 to and from the United States may be section 38 property even though used predominantly outside the United States." H. Rept. 1447, supra1995 U.S. Tax Ct. LEXIS 2">*68 , 1962-3 C.B. at 518; S. Rept. 1881, supra, 1962-3 C.B. at 860 (emphasis added). An actual usage requirement for section 48(a)(2)(B)(v), rather than a potential usage requirement, is more in harmony with the surrounding words and the history and purpose of section 48(a)(2) taken as a whole. Nothing in the legislative history suggests that Congress intended containers to be eligible section 38 property even though they never transported property to or from the United States. To allow ITC for a container that never actually transported property to or from the United States would be inconsistent with Congress' intent to encourage investment within the United States. See H. Rept. 1447, supra, 1962-3 C.B. at 416-418; S. Rept. 1881, supra, 1962-3 C.B. at 722-723. We conclude, therefore, that under section 48(a)(2)(B) some minimum contact with the United States is required for a container to qualify as section 38 property.

In light of our conclusion that some minimum contact with the United States is required under the container exception, we need not address respondent's1995 U.S. Tax Ct. LEXIS 2">*69 argument that our holdings in McCarty v. Commissioner, supra,Kelley v. Commissioner, T.C. Memo. 1982-728, and Texas Instruments, Inc. v. Commissioner, 98 T.C. 628">98 T.C. 628 (1992), support an actual use requirement for the container exception. We have considered other arguments raised by petitioners in support of their position that mere availability for use is sufficient under the container exception but find them to be unpersuasive.

Our task is not completed, however, because we still must determine how much contact is required under the container exception and whether any of the containers satisfied that requirement. We first consider the degree of contact with the United States that is required under section 48(a)(2)(B)(v) for a container to meet the container exception.

In Rev. Rul. 90-9, 1990-1 C.B. 46, 47, the Commissioner concluded that section 48(a)(2)(B)(v) and section 1.48-1(g)(2)(v), Income Tax Regs., require a container to be "used substantially in the direct transportation of property to or from the United States during1995 U.S. Tax Ct. LEXIS 2">*70 each taxable year of its recovery period" to meet the container exception.

Revenue rulings may be helpful in interpreting a statute based on their intrinsic value; however, they do not have the 104 T.C. 13">*46 force of law and are merely statements of the Commissioner's litigating and administrative position. Stubbs, Overbeck & Associates v. United States, 445 F.2d 1142">445 F.2d 1142, 445 F.2d 1142">1146-1147 (5th Cir. 1971); Burton v. Commissioner, 99 T.C. 622">99 T.C. 622, 99 T.C. 622">629 (1992); see also Dixon v. United States, 381 U.S. 68">381 U.S. 68, 381 U.S. 68">73 (1965); Frontier Sav. Association v. Commissioner, 87 T.C. 665">87 T.C. 665, 87 T.C. 665">678 (1986), affd. 854 F.2d 1001">854 F.2d 1001 (7th Cir. 1988); Stark v. Commissioner, 86 T.C. 243">86 T.C. 243, 86 T.C. 243">250-251 (1986). A ruling or other interpretation by the Commissioner is only as persuasive as her reasoning and the precedents upon which she relies. Halliburton Co. v. Commissioner, 100 T.C 216, 232 (1993), affd. without published opinion 25 F.3d 1043">25 F.3d 1043 (5th Cir. 1994).

At trial, respondent could not quantify the amount1995 U.S. Tax Ct. LEXIS 2">*71 of contact that would suffice for a container to satisfy her interpretation of the container exception.

It is the statute that governs, and we thus look to the statute, its context, and its purposes to determine how often the containers needed to transport property to or from the United States during 1981 to meet the container exception. See Commissioner v. Engle, 464 U.S. 206">464 U.S. at 223.

It appears that Congress did not explicitly consider the extent of contact with the United States a container must have to satisfy the container exception. In our view, however, general ITC principles would require that a container be used for the prescribed purpose at least once during the year it is placed in service and each year during the recapture period.

The determination of entitlement to the investment credit must be made under the conditions that exist in the year the property is first placed in service. Bloomberg v. Commissioner, 74 T.C. 1368">74 T.C. 1368, 74 T.C. 1368">1372 (1980); World Airways, Inc. v. Commissioner, 62 T.C. 786">62 T.C. 809; see also secs. 1.46-3(d)(4)(i), 1.48-1(a), Income Tax Regs. Consequently, property that does 1995 U.S. Tax Ct. LEXIS 2">*72 not satisfy the pertinent statutory requirements for section 38 property in its first year will not qualify for ITC in a subsequent year should that property later otherwise meet those requirements. See also secs. 1.46-3(d)(4)(i), 1.48-1(a), Income Tax Regs.³¹1995 U.S. Tax Ct. LEXIS 2">*73 A container used predominantly outside 104 T.C. 13">*47 the United States qualifies as section 38 property only if it is used to transport property to or from the United States. Sec. 48(a)(2)(B)(v). It follows that, if the container does not transport property to or from the United States at least once in the taxable year that container is first placed in service, it does not meet the statutory requirements under section 48(a)(2)(B)(v) for that year and hence, under section 1.48-1(a), Income Tax Regs., can never qualify as eligible section 38 property. See also sec. 1.48-1(g)(1)(ii), Income Tax Regs.³²

In addition, section 47 provides that ITC shall be recaptured when section 38 property "is disposed of, or otherwise ceases 1995 U.S. Tax Ct. LEXIS 2">*74 to be section 38 property" in the taxpayer's hands before the close of the useful life taken into account initially in calculating the ITC. Goldstone v. Commissioner, 65 T.C. 113">65 T.C. 113 (1975); see also sec. 1.47-1(a), Income Tax Regs. Property ceases to be section 38 property if, among other things, a change occurs in the use of the property, for example, if in a year subsequent to the credit year the section 38 property is used predominantly outside the United States. Williams v. Commissioner, T.C. Memo. 1987-308; H. Rept. 1447, supra, 1962-3 C.B. at 418; S. Rept. 1881, supra, 1962-3 C.B. at 724; see secs. 1.47-2(a)(2), 1.48-1(g)(1)(ii), Income Tax Regs. It follows that if a container does not transport property to or from the United States at least once in each taxable year after the year it was placed in service, the container ceases to be section 38 property because of the change in its use. See secs. 1.47-2(a)(2), 1.48-1(g)(1)(ii), Income Tax Regs.

We find no support in the record, however, for a holding that a container must be used more than once each year1995 U.S. Tax Ct. LEXIS 2">*75 in the transportation of property to or from the United States to satisfy section 48(a)(2)(B)(v). Consequently, we conclude 104 T.C. 13">*48 that one contact with the United States in 1981 is sufficient for a container to satisfy the container exception.

However, petitioners contend in essence, among other things, that requiring a container lessor to prove that a container was used in the prescribed manner each year is inconsistent with the realities of the container industry and would require a degree of computer tracking technology that generally was not in place in the early eighties and at a cost adverse to the needs of the industry. However, as we have said in another case involving ITC: "The Congress may have thought highly of the investment credit, but it hedged the provisions about with great numbers of restrictions. It is not for us * * * to question the wisdom of the restrictions on the investment credit." Zuanich v. Commissioner, 77 T.C. 428">77 T.C. 451-452 (fn. ref. omitted).

We now must decide whether any of the containers satisfied the container exception so as to qualify for ITC for 1981 and accelerated depreciation for 1981 through 1985. Petitioners 1995 U.S. Tax Ct. LEXIS 2">*76 implicitly contend that, if actual use is required under the container exception, then most of the containers nonetheless satisfied that exception. Respondent disagrees. The parties have submitted expert testimony in support of their respective positions. We have found that testimony, for the most part, of little benefit to the Court. The experts, especially respondent's, in our view appear to have based their conclusions on assumptions which seem tailored to arrive at a predetermined end.

We weigh expert testimony in light of the expert's qualifications as well as all the other credible evidence in the record. Estate of Newhouse v. Commissioner, 94 T.C. 193">94 T.C. 193, 94 T.C. 193">217 (1990). We are not bound by the opinion of any expert witness, and we will accept or reject that expert testimony when, based on the record, in our best judgment it is appropriate to do so. Id.; Chiu v. Commissioner, 84 T.C. 722">84 T.C. 722, 84 T.C. 722">734 (1985). While we may choose to accept the opinion of one expert in its entirety, Buffalo Tool & Die Manufacturing Co. v. Commissioner, 74 T.C. 441">74 T.C. 441, 74 T.C. 441">452 (1980), we also may be selective in the use of1995 U.S. Tax Ct. LEXIS 2">*77 any portion of that opinion, Parker v. Commissioner, 86 T.C. 547">86 T.C. 547, 86 T.C. 547">562 (1986).

In the instant cases, we give no weight to the expert opinions expressed by respondent's expert witnesses, Darwin Epps (Epps) and Oddvar Karlsen (Karlsen). For the most 104 T.C. 13">*49 part, we find their analyses of container movement to be based on inadequate samplings and their reports to be riddled with faulty or slanted assumptions as well as inaccurate and incomplete data. Consequently, we reject their conclusions as unreliable.

However, we do not embrace wholeheartedly the conclusions espoused by petitioners' expert witnesses because, in our view, some of the assumptions on which they relied also appear faulty. Below, in our analysis of those conclusions, we will focus primarily on the testimony given, and the conclusions reached, by Eugene P. Ericksen (Ericksen) because he relied to some extent on the conclusions of petitioners' other expert witnesses, Michael L. Cohen (Cohen) and Colin C. Munro (Munro), to reach his own conclusions.

Ericksen determined the probability that the containers came to or left from the United States (touched) using alternative time periods, including1995 U.S. Tax Ct. LEXIS 2">*78 yearly tests, under which a container had to touch the United States once each year of the applicable period (e.g., 1981, 1981-82, 1981-83), and periodic tests, under which a container had to touch the United States once in each period. For purposes of his report, Ericksen was asked by Flexi-Van to determine the probability that the containers touched the United States at least once in the 3-year period commencing January 1, 1981, and ending December 31, 1983 (1981-83 period). For this purpose, he estimated the proportion of the value of the containers that came to the United States at least once during that period. Ericksen concluded that 89.7 percent of the container value of the 37,983 containers he studied, ³³ weighed by cost, actually was used in the transportation of property to or from the United States during the 1981-83 period.

1995 U.S. Tax Ct. LEXIS 2">*79 Ericksen based his conclusions on Flexi-Van's records showing the location at which the containers were picked up or dropped off at the beginning or end of each lease, the route structures of Flexi-Van's lessees as determined under Munro's direction by Dynamar BV (Dynamar), a maritime consultancy company, ³⁴1995 U.S. Tax Ct. LEXIS 2">*80 and a statistical analysis using an 104 T.C. 13">*50 estimate of the average number of trips an average container in world trade would make each year during 1981 and subsequent years. For the average number of trips each year Ericksen used 5.5, which was based on an analysis prepared under Cohen's direction by Mercer Management Consulting (Mercer), a global general management consulting firm, ³⁵ as well as a study prepared by Raymond H. Fenyoe and Gerard M. Brannon (Fenyoe/Brannon study) that was submitted to the IRS National Office by Reliance Group in support of its request for technical advice, see 480 U.S. 23">supra p. 26. For 1981, the Fenyoe/Brannon study estimated that a container made an average of 5.3 trips a year (excluding transshipments). ³⁶

For purposes of his analysis, Ericksen assumed that a container was actually used substantially in the transportation of property to or from the United States if it made a single trip to or from the United States during the 1981-83 period. Ericksen first calculated the probability of each individual container's touching the United States at least once during the 1981-83 period. For this purpose, Ericksen divided the 37,983 containers into five 1995 U.S. Tax Ct. LEXIS 2">*81 groups.

Group 1 consisted of 18,521 containers (48.8 percent of the total) that were on-hired or off-hired in the United States in connection with a lease during the 1981-83 period. Ericksen assumed that all of the group 1 containers were engaged in 104 T.C. 13">*51 the transportation of property to or from the United States during the 1981-83 period, and that the probability of those containers' coming to or going from the United States during that period was 100 percent.

Group 2 consisted of 4,884 containers (12.9 percent) that did not have an on-hire or off-hire in the United States during the 1981-83 period, but that were leased to a lessee all of whose container capacity was devoted to U.S. routes according to Dynamar's study. Ericksen treated all of those containers as having been engaged in the transportation of property to or from the United States during the 1981-83 period and also assigned them a probability of 100 percent.

In group 3 were 1,895 containers (5 percent) that were leased to shipping companies with no U.S. routes or exclusively on single trip leases between two non-U.S. ports. Those containers were deemed not to have been used in the transportation of property to or1995 U.S. Tax Ct. LEXIS 2">*82 from the United States during the 1981-83 period and were assigned a zero probability of touching the United States.

In group 4 were 7,443 containers (19.6 percent) that were leased to one or more shipping companies with some U.S. routes and which had at least one multitrip lease to a lessee that Dynamar studied and no multitrip lease to a lessee not studied by Dynamar. For each such individual container, Ericksen estimated the probability that it had touched the United States during the 1981-83 period. To calculate that probability, Ericksen utilized (1) an assumption that the probability of that container's coming to or going from the United States on any one trip was equal to the proportion of the carrying capacity of the lessee estimated by Dynamar to have been devoted to U.S. routes, and (2) an assumption of the number of trips the container made during the lease period, estimated on the basis of information in Flexi-Van's database and the premise that a container on average made 5.5 trips each year. ³⁷ Ericksen used the following formula to 104 T.C. 13">*52 calculate the probability of a container in group 4 touching the United States while on lease:

1 - (1 - p)<n>,