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IES Indus., Inc. v. United States

ELR Citation: 31 ELR 20731
Nos. Nos. 00-1221, -1535, 253 F.3d 350/(8th Cir., 06/14/2001)

The court holds that an electric utility company that was a 70% owner of a nuclear power plant in Iowa can deduct 15 years' worth of Energy Policy Act (EPACT) assessments in the tax year that the liability was determined. In 1992, Congress enacted the EPACT, which established a fund for the decontamination and decommissioning of uranium-enrichment plants. Each utility was assessed an amount based on that utility's previous use of uranium-enrichment services, regardless of whether those services were purchased directly from the U.S. Department of Energy or on the secondary market. Also in 1992, pursuant to the EPACT, the company became liable for 15 special assessments totaling over $16 million. It made the first payment in 1993. The company filed an amended corporate federal income tax for 1992 seeking a tax refund, arguing that the liability for the entire $16 million assessment was incurred in 1992 even though none of it had been paid. The Internal Revenue Service denied the refund.

The court holds that the company is entitled to a full deduction of the assessments in tax year 1992. As an accrual method taxpayer, income to the company is taxable in the year the income is accrued even if it is not received that year. Likewise, liability is incurred, and generally taken into account for federal income tax purposes, in the taxable year in which all events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to liability. Here, the "all events" test was satisfied in 1992 with the passage of the EPACT, and the amount of liability was known in 1992. Moreover, economic performance occurred in 1992. The EPACT assessments are properly characterized as arising out of the provision of uranium-enrichment services, all of which had been provided by the time the EPACT payments were assessed in 1992. Thus, the company was entitled to a refund in 1992.

In a separate matter, the court also holds that because the company's American Depository Receipts transactions had both economic substance and business purpose and were valid for tax purposes, the company was entitled to a foreign tax refund.

Counsel for Plaintiff
Thomas C. Borders
McDermott, Will & Emery
227 W. Monroe St., Ste. 3100, Chicago IL 60606
(312) 372-2000

Counsel for Defendant
Richard Farber
Tax Division
U.S. Department of Justice, Washington DC 20530
(202) 514-3361

Bowman, J. Before Arnold and Kyle,1 JJ.