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CALIFORNIA m fm A TELEPHONE COMPANX San Franolaco, California X 00 Montgomery Street un# 3 » Mr. William Reinhardt flee President Onion Paoiflo Railroad 6 t h A Olive Streets Lot Angeles, California Deer Bill: Vlth reference to our telephone conversation of this aomlng, you spoke of setting vm a depletion account for your emerganoy construe-tlen of water facilities at Lao Vegas, Nevada. I have gone over the records of the old iSaat Bay Water Company sad find that the accounts that they ssmmrtiaed in about 1R20 vers for preliminary work on projects that were never oompletad, and that the work that they did during World-far although of an emergency nature, was set up in the capital accounts and handled Just like any other capital addition. In 1916, when our Sweetwater Daft In San THego County was damaged by the flood, the Railroad Commission permitted the amortisation of the cost of the emergency repair work over a period of years. You oen, therefore, see that the accounting procedure apparently takes ©are of extraordinary maintenance or repairs by amortising those extraordinary costs over a period of years. However, whan It ©owes to extraordinary capital expenditures, they seem to take another view of the matter and that is that this construction work should go Into the capital account, so that it will not bo lost in any future transactions. If the cost of this emergency construction is material, it might be recovered by a surcharge on the rates provided a proper showing is made to the Nevada Commission to prove that this surcharge is necessary during the emergency. I think, also, that if this extraordinary expenditure can ba handled through a "Necessity Certificate*, it nay then be amortised for inoome tax purposes over a period of say five years. fhle so-ealled "Reeeaelty Certifies!#* is under Beetion 12% of the Internal Revenue Code and I believe your accounting department would be sufficiently familiar with it to go through the necessary machinery in order to obtain one for the Las Vegas expenditures. Vt have obtained a number of tfaeia Necessity Certifloataa for extraordinary expenditures made at places like Camp naan U Riverside County, for the United State© Army.