Document: 493 U.S. 203 110 S.Ct. 589 107 L.Ed.2d 591 COMMISSIONER OF INTERNAL REVENUE, Petitionerv.INDIANAPOLIS POWER & LIGHT COMPANY. No. 88-1319. Argued Oct. 31, 1989. Decided Jan. 9, 1990. Syllabus Respondent Indianapolis Power Light Co. (IPL), a regulated Indiana utility and an accrual-basis taxpayer, requires customers having suspect credit to make deposits with it assure prompt payment of future electric bills. Prior termination service, who satisfy test can obtain refund their or choose have the amount applied against Although are at all times subject company's unfettered use control, IPL does not treat them as income time receipt but carries on its books current liabilities. Upon audit IPL's returns for tax years issue, petitioner Commissioner Internal Revenue asserted deficiencies, claiming that advance payments electricity therefore taxable in year receipt. The Tax Court ruled favor petition redetermination, holding deposits' principal purpose is serve security rather than prepayment income. Appeals affirmed. Held: customer do constitute upon derives some economic benefit from deposits, requisite "complete dominion" over they made, crucial point determining has obligation repay service satisfaction test. Moreover, submitting deposit makes no commitment purchase any all. Thus, while eventually may be used pay by virtue default choice, right retain made contingent events outside control. This construction consistent Court's longstanding treatment sums deposited secure tenant's performance lease agreement, perhaps closest analogy present situation. Pp. 207-214. 857 F.2d 1162 (C.A.7 1988), BLACKMUN, J., delivered opinion unanimous Court. Lawrence G. Wallace, Washington, D.C. petitioner. Larry J. Stroble, Indianapolis, Ind. respondent. Justice BLACKMUN 1 Company (IPL) certain bills service. Petitioner contends these otherwise. 2 * corporation generates sells environs. It keeps accrual calendar basis. During 1974 through 1977, approximately 5% residential commercial were required "to insure payment," customers' receipts stated, These selected because was suspect. March 10, 1976, requirement imposed case-by-case relied employed fixed formula. ordinarily twice customer's estimated monthly bill. paid 3% interest held six months more. A could prior requesting review demonstrating acceptable credit. usually cash check, 3 In amended rules governing program. See 170 Ind.Admin.Code § 4-1-15 (1988). Under rules, whom basis rate raised 6% payable only 12 refunded when timely either 9 consecutive months, 10 out so long delinquent themselves consecutive. satisfying As under previous would or, option, Any unclaimed after seven escheat State. Ind.Code 32-9-1-6(a) (1988).1 4 did Rather, state administrative regulations, carried accounting system, recognized mailed If offset bill, necessary adjustments. Customer physically segregated way general funds. They commingled other undisputed accepted practice applicable regulations. 5 respondent's deficiencies. items initially dispute, parties able reach agreement every issue except proper 1975, 1977. took position He contended increase decrease outstanding end each represented year.2 disagreed filed United States redetermination 6 reviewed decision, one judge participating, IPL. 88 T.C. 964 (1987). court followed approach had adopted City Gas Florida v. Commissioner, 74 386 (1980), rev'd, 689 943 (CA11 1982). found "continue examine facts circumstances," T.C., 976, several factors concluding question properly excluded gross noted, among things, deposits; controlled ultimate disposition deposit; consistently treated belonging customers, both listing liabilities purposes paying interest. Id., 976-978. 7 Seventh Circuit affirmed decision. stated "the appropriate look primary based circumstances. . ." 1167. appeared place reliance, however, deposits. "as begins approximate return recipient expected 'the use' amount, comport more squarely deposit." 1169. Noting throughout period question, upheld, clearly erroneous, determination 1170. 8 Because specific disagreement Eleventh Circuit's ruling Florida, supra, we granted certiorari resolve conflict. 490 1033, 109 1929, 104 401 (1989). II We begin common ground. acknowledges if supplied.3 his part, concedes non-income-producing covenants—such ensure meters will damaged—are And settled loan borrower. Tufts, 461 300, 307, 103 1826, 1831, 75 863 (1983) ("Because [the repayment] obligation, proceeds qualify taxpayer"); James States, 366 213, 219, 81 1052, 1055, 246 (1961) (accepted definition "excludes loans"); Wilcox, 327 404, 408, 66 546, 549, 90 L.Ed. 752 (1946). IPL, stressing interest, asserts similar loans. which serves analogized goods services. Rev.Rul. 72-519, 1972-2 Cum.Bull. 32, 33 ("[W]hen guarantee amounts owed creditor, such payment, property taxpayer regarded true deposit"). terms, sure, distinction between degree kind. loan, like confers recipient: business presumably borrow money unless believes earn borrowed funds greater obligation. Illinois 792 683, 690 (CA7 1986). Even though duty repay, borrower must regard itself better off before. consists entirely opportunity repaid. context our system content earnings realized. contrast, gains immediate (with chance realize thereon) profit providing services cost lower payment. 11 therefore, cannot resolved simply noting respondent deposits.4 turns nature rights obligations assumed made. what sort benefits income, this invoked various formulations. referred, example, "undeniable accessions wealth, realized, taxpayers complete dominion." Glenshaw Glass Co., 348 426, 431, 473, 477, 99 483 (1955). also stated: "When acquires earnings, lawfully unlawfully, without consensual recognition, express implied, restriction disposition, 'he received .' " U.S., S.Ct., quoting North American Oil Consolidated Burnet, 286 417, 424, 52 613, 615, 76 1197 (1932). hardly enjoyed entrusted it. acquired "obligation repay," terminated established good So fulfills legal payments, ultimately refunded, timing method largely within control customer. stresses fact placed escrow funds, unrestricted money. That circumstance, dispositive. After all, same might said loan; yet suggest free whatever fashion he chooses until repayment. whether enjoys given sum, unconstrained during interim period. key allowed keep accompanied guarantee. 13 Nor especially significant generate modest pay. Again, since, been unlikely exceed servicing debt. bank operate profitably surpass obligations; income.5 course taxable, prospect generated provides ground taxing principal. 14 Commissioner's advance-payment seems us rest misconception value recipient. An here, concededly protects seller risk unable collect furnished But much more: purchaser back deal before performs. From moment assured that, contractual keep. Here, specified quantity electricity, indeed all.6 depends later decision bills, merely utility's adherence duties. circumstances, dominion fund far less case 15 emphasizes frequently defaults customer, credit, apply accept refund. When occurs, argues, transaction, cash-flow standpoint, equivalent view equivalence mandates identical treatment.7 16 Whether received, parties' problem petitioner's argument best understood imagine involved ongoing relationship. At falls due, lender decide him repayment cash. mean effect taken (as right) chosen Although, sake convenience, combine two steps, blind substance transactions involved.8 element choice distinguishes loan. equivalents receipt, determined examining relationship deposit. individual retains insist funds; terms bargain, submits utility, hypothetical, cash; assumes so, "dominion" 17 examines privately structured transactions, understanding parties, course, apparent. transfer nominally conceal unstated need not, attempt devise addressing those situations where bargain legitimately dispute. particular respondent, conducts heavily environment; vis-a-vis law regulation private negotiation. refunds taking unspoken so. 18 Our long-standing deposits—perhaps traditionally distinguished sum designated rent receipt—and agreement. See, e.g., E. Enterprises, Inc. 26 TCM 944 (1967).9 fact, here plausibly be. typical secures fulfillment term lease. tenders 19 recognize event improves condition. reflects services, hold insufficient 20 judgment 21 ordered. total escheated State $9,325. Stipulation Facts ¶ 25. stipulation sets forth balance customer-deposit account December 31 1954, 1974, notice deficiency, concluded include 1975 1975. For 1976 reflect respective decreases years. Schlude 372 128, 83 601, 633 (1963); Automobile Assn. 367 687, 1727, 1109 (1961); Club Michigan 353 180, 77 707, 746 (1957). cases concerned payments—nonrefundable fees services—that indisputably constituted income; taxable. such, Burke Friel, Recent Developments Income Taxation Individuals, Tax-Free Security: Reflections Light, Rev. Individuals 157, 174 (1988) (arguing economic-benefit superior theory, acknowledging "an adopted, pursued Service courts"). Cf. 71-189, 1971-1 32 (inactive accounts). Fidelity-Philadelphia Trust 23 527 (1954). terminate day making Also, remains incomplete even buying electricity. typically set pays fashion, owes (for for) almost always case, provide inadequate protection. held, least portion likely real assurance ever retaining. unwilling, pursue line reasoning limit logic. escrow, Tr. Oral Arg. 4; standpoint difference receives allocates subsequent purchases take separate applying nothing economically meaningless "exchange checks." checks," convenient, accurately transactions. Enterprises "If lessor beginning lease, circumstances thereof required. If, hand, lessee's returned expiration thereof, instead temporary situation acknowledged liability covenants prevents being receipt." TCM, 945-946. part authority proposition intended income-producing nonincome-producing not. Cum.Bull., 33. view, neither nor cited Ruling support distinction. Hirsch Improvement 143 912 (CA2), cert. denied, 323 750, 65 84, 89 601 (1944); Mantell 1143 (1952); Gilken Corp. 445 (1948), aff'd, 176 141 (CA 1949). distinguish covenants.

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