Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-14-05067/USCOURTS-ca13-14-05067-0/pdf.json

Parties Involved:
Amergen Energy Company, LLC
Appellant
United States
Appellee

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

AMERGEN ENERGY COMPANY, LLC, BY AND

THROUGH EXELON GENERATION COMPANY, LLC, 

TAX MATTERS PARTNER,

Plaintiff-Appellant

v.

UNITED STATES,

Defendant-Appellee

______________________ 

2014-5067

______________________ 

Appeal from the United States Court of Federal 

Claims in No. 1:09-cv-00108-LJB, Judge Lynn J. Bush.

______________________ 

Decided: March 11, 2015

______________________ 

PAUL MARCH SMITH, Jenner & Block LLP, Washington, DC, argued for plaintiff-appellant. Also represented 

by TERRI L. MASCHERIN, JOHN J. HAMILL, Chicago, IL. 

ARTHUR THOMAS CATTERALL, Tax Division, United 

States Department of Justice, Washington, DC, argued 

for defendant-appellee. Also represented by RICHARD 

FARBER, GILBERT STEVEN ROTHENBERG, TAMARA W.

ASHFORD. 

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2 AMERGEN ENERGY COMPANY, LLC v. US

B. JOHN WILLIAMS, JR., Skadden, Arps, Slate, 

Meagher & Flom LLP, Washington, DC, for amicus curiae 

Entergy Corporation. Also represented by DAVID W.

FOSTER.

______________________ 

Before LOURIE, MOORE, and CHEN, Circuit Judges.

LOURIE, Circuit Judge. 

AmerGen Energy Company, LLC (“AmerGen”), by and 

through Exelon Generation Company, LLC, appeals from 

the decision of the United States Court of Federal Claims 

(the “Claims Court”) granting summary judgment that 

AmerGen may not include future nuclear decommissioning liabilities that it assumed when it purchased three 

nuclear power plants in the basis of the acquired assets in

its 2001 through 2003 tax returns. AmerGen Energy Co. 

v. United States, 113 Fed. Cl. 52 (2013) (“Summary 

Judgment”). The Claims Court reasoned that because 

those nuclear power plants would not be decommissioned 

until years later, AmerGen’s decommissioning liabilities 

did not satisfy the economic performance requirement of 

26 U.S.C. § 461(h) (2000).1 Id. at 73.

We conclude that the Claims Court correctly decided 

that § 461(h) is applicable in determining when and 

whether an accrual method taxpayer, such as AmerGen, 

incurs future nuclear decommissioning liabilities for 

purposes of calculating the basis of an acquired nuclear 

power plant and associated assets. Because AmerGen did

not economically perform the decommissioning activities 

at issue as of 2001 through 2003, the relevant tax years, 

we affirm. 

1 Title 26 of the United States Code is also referred 

to herein as “Internal Revenue Code” or “I.R.C.”

 

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AMERGEN ENERGY COMPANY, LLC v. US 3

BACKGROUND

In 1999 and 2000, AmerGen purchased three nuclear 

power plants, viz., the Three Mile Island Unit-1 nuclear 

plant (“TMI-1”), the Clinton Power Station (“Clinton”), 

and the Oyster Creek Nuclear Generating System (“Oyster Creek”), and assumed responsibility for their operations. AmerGen paid a purchase price of $93 million for

those plants and related assets. J.A. 507. According to 

AmerGen, it also assumed future decommissioning liabilities associated with each plant.

Operating a nuclear power plant within the United 

States requires a license from the Nuclear Regulatory 

Commission (“NRC”). See 42 U.S.C. § 2131. AmerGen 

applied for and obtained the NRC’s approval of the transfer of the plants’ operating licenses. As a licensee, 

AmerGen was subject to the regulations promulgated by 

the NRC, including the obligation to decommission its 

nuclear power plants after they would permanently cease 

operations. See 10 C.F.R. §§ 50.2, 50.82(a)(3).

None of the three nuclear power plants was decommissioned as of the relevant 2001 through 2003 tax years. 

The operating license for Oyster Creek was originally set 

to expire in 2009, and has since been extended to 2029. 

The operating license for TMI-1 was originally set to 

expire in 2014, and has also been extended to 2034. The 

operating license for Clinton will not expire until 2026, 

and may be extended to 2046. Under 10 C.F.R. 

§ 50.82(a)(3), the process of decommissioning may take

sixty years after a nuclear power plant permanently 

ceases operations. Thus, AmerGen might not fully satisfy 

its decommissioning obligations until 2106. Summary 

Judgment, 113 Fed. Cl. at 58.

Before AmerGen acquired the nuclear power plants, 

the prior owners had established qualified and nonqualified decommissioning trust funds in which they set aside 

money to pay for decommissioning in the future. A qualiCase: 14-5067 Document: 47-2 Page: 3 Filed: 03/11/2015
4 AMERGEN ENERGY COMPANY, LLC v. US

fied fund satisfies the requirements of I.R.C. § 468A and 

receives special tax treatment. A taxpayer’s contribution 

to a qualified fund is subject to statutory limitations on 

the allowable amount of contributions as well as a “ruling 

amount” set by the Internal Revenue Service (“IRS”). See

I.R.C. § 468A(b), (d) (2000). The contributions are currently deductible, and investment incomes are taxed at a 

fixed rate. See id. § 468A(a), (e) (2000). A nonqualified 

fund, however, does not have those tax advantages; in 

particular, contributions are not currently deductible, and 

earnings are taxed at a taxpayer’s otherwise applicable 

rate. 

While planning the purchase of the nuclear power 

plants, AmerGen was advised by its tax accountants that 

it was “unlikely” that the IRS would allow AmerGen “to 

include the assumed decommissioning liability in the 

basis of the assets acquired on the date of the purchase”

because the economic performance requirement of Treas. 

Reg. § 1.461-1(a)(2)(i) would not “be met at the planned 

purchase date.” J.A. 1238. The tax accountants further 

advised that, under the then-existing basis-allocation 

rules, the entire amount of cash consideration that

AmerGen planned to pay would be allocated to the basis 

of transferred nonqualified funds, rather than to the basis 

of the nuclear power plants.2 J.A. 1239.

AmerGen sought private letter rulings on the matter 

from the IRS. The IRS ruled that, at the time of pur2 In 2004, the IRS promulgated a regulation that 

prospectively provides for an election that effectively 

allows purchasers of nuclear power plants to allocate 

basis to depreciable plants and equipment before allocating it to nonqualified funds. See Treas. Reg. § 1.338-

6(c)(5). That regulation, however, does not apply here 

because AmerGen’s acquisitions took place in 1999 and 

2000, under the old basis-allocation rules.

 

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chase, AmerGen would “not be entitled to treat as a 

component of its cost basis . . . any amount attributable to 

the future decommissioning liability” because AmerGen 

would not have performed any services relating to decommissioning and thus the liability would not be incurred for tax purposes under § 461(h). I.R.S. P.L.R. 

200004040 (Oct. 29, 1999); I.R.S. P.L.R. 200034008 (May 

18, 2000); I.R.S. P.L.R. 200037020 (June 9, 2000). The 

IRS also confirmed that AmerGen must allocate basis of 

the acquired assets under the then-existing basisallocation rules. In addition, the IRS ruled that AmerGen 

would obtain a carry-over basis for qualified funds to be 

transferred to AmerGen, and those funds would remain 

qualified under § 468A.

AmerGen accordingly evaluated its planned acquisitions under the assumption that the decommissioning 

liabilities would not be added to the basis of the acquired 

assets at the time of purchase. J.A. 1880–81. AmerGen 

required the sellers to make additional contributions to 

their decommissioning trust funds prior to closing and 

then to transfer both qualified and nonqualified trust 

funds to AmerGen. According to AmerGen, it received a 

total of $974 million in transferred funds from the sellers, 

including $393 million in qualified funds and $581 million 

in nonqualified funds.3 J.A. 503–04. AmerGen did not 

3 In 2005, Congress amended § 468A and eliminated certain statutory limitations on the allowable amount 

of contributions to a qualified fund. The 2005 amendment 

also permits a taxpayer maintaining a qualified fund to 

make a deductible catch-up contribution to that fund. 

I.R.C. § 468A(f)(1). In 2008, AmerGen transferred $454 

million from its nonqualified funds to its qualified funds 

and deducted the entire $454 million on its 2008 return. 

J.A. 505, 3336.

 

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6 AMERGEN ENERGY COMPANY, LLC v. US

contribute additional money of its own to those funds 

after the purchase. J.A. 505.

AmerGen filed its tax returns on a calendar-year basis using the accrual method of accounting. J.A. 58. On

its amended tax returns for 2001 and 2002, and on its tax 

return for 2003, AmerGen claimed that, in addition to the

$93 million it paid in purchase price, it assumed decommissioning liabilities in the amount of $2.15 billion that 

should be included in the basis of the acquired assets at 

the time of purchase, a position contrary to that of the 

IRS. J.A. 1236, 2944. According to AmerGen, the total 

basis of the acquired assets should be $2.24 billion rather 

than $93 million. With that basis adjustment, and the 

corresponding depreciation and amortization deductions

and reduced amount of capital gains, AmerGen attempted 

to reduce its taxable income by more than $110 million 

per year. The IRS rejected AmerGen’s request to include 

the assumed decommissioning liabilities in the basis of 

the acquired assets for its 2001 through 2003 tax returns. 

In February 2009, AmerGen deposited $2.9 million 

with the IRS and then sued the United States in the 

Claims Court. J.A. 55. There, it changed the valuation of 

its decommissioning liabilities and instead claimed that it 

assumed decommissioning liabilities in the amount of 

$1.69 billion.4 J.A. 507. AmerGen alleged that it should 

be allowed to include that amount in the basis of its

4 According to AmerGen, of the $1.69 billion, $950 

million was to fund future decommissioning required by 

the NRC. Appellant’s Br. 10–11. The rest was to fund the 

management of spent nuclear fuel and site restoration not 

required by the NRC. Id. Moreover, the $1.69 billion 

figure reflects the entire estimated decommissioning 

obligation, with no reduction for the portion allocable to 

qualified funds, for which AmerGen has already received 

favorable tax treatment under § 468A. Appellee’s Br. 20.

 

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AMERGEN ENERGY COMPANY, LLC v. US 7

acquired assets at the time of purchase, i.e., a total basis 

of $1.78 billion rather than $93 million, and that for 2001 

through 2003, with the increased basis, it was entitled to 

claim (1) reduced capital gains recognized on the sale of 

securities in its nonqualified funds, (2) depreciation 

deductions of the nuclear power plants, (3) amortization of 

goodwill in the amount of $72 million per year, and 

(4) additional deductions based on a note receivable that 

AmerGen acquired from one of the sellers. J.A. 66–73.

The parties filed cross-motions for summary judgment. The Claims Court granted the government’s motion and denied AmerGen’s motion. The parties disagreed 

as to whether § 461(h) is applicable in calculating the 

basis of the purchased assets. The court agreed with the 

government and concluded that the plain text of the 

statute indicates that § 461(h) and its statutory “all 

events test” is “of general applicability and should be 

applied to determine when liabilities are incurred for the 

purpose of cost basis calculations.” Summary Judgment, 

113 Fed. Cl. at 63 (emphasis added). The court then 

considered the case law, the legislative history, and the 

relevant Treasury regulations, and found additional 

support for its reading of the plain statutory text. Id. at 

64, 67, 69, 70.

The court considered whether AmerGen incurred the

decommissioning liabilities at the time of purchase, 

specifically, whether at that time those liabilities satisfied 

the economic performance requirement of § 461(h). The 

court concluded that the timing rule of § 461(h)(2)(B)

applies, under which economic performance occurs when 

AmerGen provides the required services, i.e., decommissioning. Id. at 72. Because AmerGen would not decommission its nuclear power plants until years later, the 

court concluded that AmerGen did not incur the decommissioning liabilities and thus may not include them in 

the basis of the acquired assets at the time of purchase. 

Id. at 73.

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The Claims Court entered final judgment in favor of 

the government. AmerGen timely appealed. We have 

jurisdiction under 28 U.S.C. § 1295(a)(3).

DISCUSSION

We review the Claims Court’s grant of summary 

judgment de novo. Abbott Labs. v. United States, 573 

F.3d 1327, 1330 (Fed. Cir. 2009). Summary judgment is 

appropriate when, drawing all justifiable inferences in the 

nonmovant’s favor, “there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a 

matter of law.” Fed. Cl. R. 56(a); Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 255 (1986). Issues of statutory 

interpretation are also reviewed de novo. Qantas Airways 

Ltd. v. United States, 62 F.3d 385, 387 (Fed. Cir. 1995). 

This appeal raises only issues of law and there is no 

genuine dispute concerning issues of fact.

I 

I.R.C. § 1012 provides in relevant part that “[t]he basis of property shall be the cost of such property . . . .” 

The “cost of such property” is the “cost to the taxpayer.” 

Detroit Edison Co. v. Comm’r, 319 U.S. 98, 102 (1943). A 

property’s basis may be adjusted over time to reflect 

capital expenditures on the property, as well as exhaustion and wear and tear. I.R.C. §§ 1011, 1016. 

In Crane v. Commissioner, 331 U.S. 1 (1947), the Supreme Court held that “the proper basis [of a property] is 

the value of the property, undiminished by mortgages 

thereon.” Id. at 11. Subsequently, courts have extended 

the holding of Crane and determined that, under certain 

circumstances, the basis of an acquired asset includes, not 

only the purchase price, but also noncontingent liabilities 

assumed by the buyer or encumbering the asset. See, e.g., 

Denver & Rio Grande W. R.R. Co. v. United States, 505 

F.2d 1266, 1269 (Ct. Cl. 1974).

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According to case law, a liability of a taxpayer using 

the accrual method of accounting is deemed incurred 

when all events have occurred that determine the fact of 

liability and the amount of that liability with reasonable 

accuracy. See United States v. Anderson, 269 U.S. 422, 

441 (1926). In 1984, Congress enacted I.R.C. § 461(h), 

which provides in relevant part as follows: 

(h) Certain liabilities not incurred before economic performance.

(1) In general. For purposes of this title, in determining whether an amount has been 

incurred with respect to any item during 

any taxable year, the all events test shall 

not be treated as met any earlier than 

when economic performance with respect 

to such item occurs. 

. . .

(4) All events test. For purposes of this subsection, the all events test is met with respect to any item if all events have 

occurred which determine the fact of liability and the amount of such liability can 

be determined with reasonable accuracy. 

I.R.C. § 461(h)(1), (4) (2000) (emphases added). 

AmerGen argues that the economic performance requirement codified in § 461(h) is inapplicable in calculating the basis of purchased assets. According to AmerGen, 

purchase-price basis is governed by Crane and its progeny, which only require a liability to be noncontingent and 

definite. AmerGen asserts that the “all events test” is a 

term of art, and, according to the case law before 1984,

the test only applied to expense deductions by an accrual 

method taxpayer, not to basis calculation. AmerGen 

contends that when Congress enacted § 461(h), it did not 

expand the scope of the “all events test”; it only added the

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10 AMERGEN ENERGY COMPANY, LLC v. US

economic performance requirement. AmerGen also argues that because the “all events test” is not directed to a 

taxpayer using the cash method of accounting, the test is 

inapplicable to purchase-price basis calculation, which 

concerns both cash method and accrual method taxpayers.

The government responds that § 461(h) should be applied to determine when and whether a liability or cost is

incurred for purposes of basis calculation. According to 

the government, the plain text of § 461(h)(1) makes clear 

that the economic performance rule is applicable to “any 

item” for “purposes of this title,” i.e., the Internal Revenue 

Code, and that the statute makes no reference to any pre1984 “all events test.” The government also argues that 

the test for determining whether a liability could be 

included in the basis of purchased assets (what AmerGen 

calls the “contingency” test under Crane) is substantively 

indistinguishable from the “all events test.” The government also notes that Congress enacted both § 461(h) and 

§ 468A in 1984 to address the issue of premature accrual 

of nuclear decommissioning liabilities and that AmerGen 

improperly seeks to circumvent this statutory scheme.

We conclude that § 461(h) is applicable in determining 

when and whether an accrual method taxpayer incurs 

nuclear decommissioning liabilities for purposes of calculating the basis of an acquired nuclear power plant and 

associated assets. First, § 461(h)(1) plainly states that it 

applies for all “purposes of this title,” i.e., the Internal 

Revenue Code, not just to a subset of tax provisions, such 

as specific deduction provisions. Second, the text of 

§ 461(h)(1) and § 461(h)(4) specifies that they apply “with 

respect to any item” and thus the statutory “all events 

test” is not limited to expense deductions. Prior to 1984, 

there was no statutory “all events test,” and Treasury

regulations provided a two-prong “all events test” for 

determining when an expense was deductible for an 

accrual method taxpayer. Treas. Reg. § 1.461-1(a)(2) 

(1967). However, when Congress enacted § 461(h), it used 

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AMERGEN ENERGY COMPANY, LLC v. US 11

broader language, namely, “with respect to any item” of a 

liability. Thus, Congress not only added the economic 

performance requirement in § 461(h)(1), but also enacted 

a new and more inclusive “all events test” in § 461(h)(4) 

that is not limited to expense deductions by an accrual 

method taxpayer.

Moreover, we find AmerGen’s argument that the term

“all events test” in § 461(h) has certain historical limitations that preclude its application in calculating basis to 

be unavailing. As indicated, the plain text of § 461(h) 

shows that the “all events test” codified therein is applicable to “any item” of a liability. The cases cited by 

AmerGen do not establish that the test was necessarily

limited to expense deductions. Notably, AmerGen itself 

argued to the Claims Court that courts have applied a 

two-prong “contingency” test similar to the pre-1984 

regulatory “all events test” in determining whether a 

liability is includable in the basis of purchased assets. 

AmerGen’s Cross-Motion and Supporting Memorandum 

for Summary Judgment at 20, AmerGen Energy Co. v. 

United States, No. 09-108T (Fed. Cl. June 19, 2012), ECF 

No. 53.

Section 461(h) allows taxpayers to account for a future liability for tax purposes when it is incurred, and 

thus allows AmerGen, an accrual method taxpayer, to 

recognize its nuclear decommissioning liabilities at the 

appropriate time. As Congress explained, taking into 

account estimated future liability currently “overstates 

the true cost.” H.R. Rep. No. 98-432 pt. 2 at 1254 (1984), 

reprinted in 1984 U.S.C.C.A.N. 697, 917. Here, AmerGen 

might not fully satisfy its nuclear decommissioning liabilities until 2106. The actual decommissioning process can 

take sixty years to complete after the plants cease operations, with costs incurred along that time frame. The 

interpretation of § 461(h) that AmerGen urges would 

create disparate treatment of taxpayers facing the same 

nuclear decommissioning liabilities. Thus, there is no 

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12 AMERGEN ENERGY COMPANY, LLC v. US

support for a conclusion that the economic performance 

rule applies only to taxpayers who build and retain

plants, but not to those who buy and sell plants.

When Congress enacted § 461(h) in 1984, it also enacted § 468A and § 172(f) specifically for nuclear decommissioning costs. Those two provisions provide limited 

means for a nuclear power plant owner to alter the effect 

of the otherwise applicable timing rules of § 461(h). 

Under § 468A, contributions to qualified decommissioning 

funds are deductible at the time of contribution before 

decommissioning is economically performed; and, after

economic performance occurs, a taxpayer may take additional deductions that are not previously accounted for as 

the taxpayer incurs decommissioning costs. I.R.C. 

§ 468A(a), (c)(2) (2000). Section 468A, however, sets 

specific limits on the allowable amount of contributions to 

prevent excessive funding and to ensure level funding 

over the useful life of a plant. Id. § 468A(b), (d) (2000). In 

addition, § 172(f) provides a special net operating loss 

carry-back provision for nuclear decommissioning costs, 

under which a taxpayer, after it actually incurs nuclear 

decommissioning costs, may be able to carry back the loss 

to previous tax years. See I.R.C. § 172(f)(3) (certain 

nuclear decommissioning costs carried back to each of the 

taxable years during the period beginning with the taxable year in which the plant was placed in service and 

ending with the taxable year preceding the loss year).

The tax treatment that AmerGen now seeks would effectively circumvent that statutory scheme. AmerGen 

was advised before it purchased the plants that it could 

not accelerate the future decommissioning liabilities. It 

requested the sellers of the plants to increase the amount 

of their decommissioning funds before transferring both 

qualified and nonqualified decommissioning funds to

AmerGen. After the purchase, AmerGen did not contribute additional money of its own to those funds, but instead sought to include the estimated decommissioning 

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costs in the basis of its acquired assets in order to make 

depreciation and amortization deductions.

We therefore agree with the Claims Court and conclude that § 461(h) is applicable in determining when and 

whether an accrual method taxpayer, such as AmerGen, 

incurs nuclear decommissioning liabilities for purposes of 

calculating the basis of acquired nuclear power plants and 

associated assets. AmerGen’s future decommissioning 

liabilities must be deemed incurred under § 461(h) before 

they are includable in the basis of the purchased assets.

II

Section 461(h)(2) sets specific timing rules on when 

economic performance is deemed to occur, and provides in 

relevant part as follows: 

(2) Time when economic performance occurs. Except as provided in regulations prescribed by 

the Secretary, the time when economic performance occurs shall be determined under 

the following principles:

(A) Services and property provided to the taxpayer. If the liability of the taxpayer arises 

out of 

(i) the providing of services to the taxpayer by another person, economic performance occurs as such person provides 

such services,

(ii) the providing of property to the taxpayer by another person, economic performance occurs as the person provides 

such property, or

. . . . 

(B) Services and property provided by the taxpayer. If the liability of the taxpayer requires 

the taxpayer to provide property or services, 

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economic performance occurs as the taxpayer 

provides such property or services.

I.R.C. § 461(h)(2) (2000).

AmerGen argues, in the alternative, that, even if 

§ 461(h) applies to basis calculation, economic performance of its decommissioning liabilities has already 

occurred. According to AmerGen, the controlling timing 

provision is § 461(h)(2)(A)(ii), not § 461(h)(2)(B), because 

it became obligated to incur decommissioning costs when 

the sellers conveyed the nuclear power plants. The government responds that § 461(h)(2)(A)(ii) is inapplicable, 

and instead § 461(h)(2)(B) governs, because AmerGen’s 

decommissioning obligations arose out of the NRC licenses and regulations of state and local governments, not the 

transfer of assets from the sellers. The government 

argues, moreover, that economic performance occurs when

decommissioning activities actually begin. 

We agree with the government that § 461(h)(2)(A)(ii) 

is inapplicable in this case. On the present facts, it is 

§ 461(h)(2)(B) that governs because the liabilities at issue 

are a service to be provided by the taxpayer, not a property provided or a service to be provided to the taxpayer. 

Under § 461(h), the economic performance of AmerGen’s 

decommissioning liabilities occurs when AmerGen actually decommissions its nuclear power plants. Here, the 

future decommissioning activities are services that 

AmerGen would perform to satisfy the requirements of 

the NRC or state and local governments. Cf. Treas. Reg. 

§ 1.461-4(d)(7) (example 1); H.R. Rep. No. 98-432 pt. 2 at 

1255 (1984), reprinted in 1984 U.S.C.C.A.N. 697, 918. 

Because all three nuclear power plants were in active use

at the time of purchase, and none of them was decommissioned as of the relevant tax years, the decommissioning 

service obligations were not satisfied when the sellers 

conveyed the plants to AmerGen.

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We have considered AmerGen’s remaining arguments 

and find them unpersuasive. We therefore conclude that

AmerGen did not incur the decommissioning liabilities 

and thus may not include those liabilities in the basis of 

the acquired assets.

CONCLUSION

For the foregoing reasons, we conclude that AmerGen 

may not include future nuclear decommissioning liabilities that it assumed when it purchased the three nuclear 

power plants in the basis of the acquired assets in its 

2001 through 2003 tax returns. As the Claims Court 

correctly interpreted and applied the relevant law to 

determine when and whether AmerGen incurred future 

nuclear decommissioning liabilities for purposes of calculating the basis of the acquired assets, and there are no 

genuine issues of material fact, we therefore affirm the 

decision of the Claims Court.

AFFIRMED

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