Court Opinion

ID: 9477346
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:21:04.463199+00
Date Added: 2024-06-11T17:45:49.698315
License: Public Domain

FRIEDMAN, Circuit Judge,
dissenting.
I agree with and join parts I and III of the court’s opinion, which hold, respectively, that the surcharges were gross income of the company and cannot be treated as advance payments for electricity. I disagree with the court, however, that the company’s obligation to refund without interest the surcharges over the life of the power plant does not create a deductible expense.
The pertinent Treasury Regulations provide that an accrual-basis taxpayer may deduct an expense in the taxable year “in which all the events have occurred which determine the fact of the liability and the amount thereof can be determined with reasonable accuracy.” 26 C.F.R. §§ 1.461-1(a)(2), 1.446-l(c)(l)(ii) (1987). I think that Iowa Southern satisfied the “all events” test with respect to its obligation to refund the surcharges to its customers.
The stipulation between Iowa Southern and the Iowa State Commission that provided for the monthly surcharges unequivocally stated that the surcharges collected “are to be unconditionally refunded to customers” upon the commencement of commercial operation of the new plant. There was nothing contingent or uncertain about *1115that obligation. Once the plant became operative, Iowa Southern was required to refund the amount of the surcharges by reducing the electric rates for its customers until the total amount of the surcharges it had collected had been returned. It makes no difference in determinihg the tax consequence of that obligation that the refund took the form of a reduction of future rates rather than a cash refund equal to the amount of that reduction. Cf. Natural Gas Pipeline Co. v. Federal Power Comm’n, 134 F.2d 263 (7th Cir.1942); Carrol v. Commissioner, 40 T.C.M. (P-H) ¶ 71,059 (1971); Rev.Rul. 63-182, 1963-2 C.B. 194.
It is immaterial that the refund would not necessarily go to all the customers who paid the surcharge or that some customers who had not paid the surcharge would receive refunds. As the Court of Claims explained in Washington Post Co. v. United States, 405 F.2d 1279, 1284, 186 Ct.Cl. 528 (1969), “[W]hen a ‘group liability’ is involved, it is the certainty of the liability which is of utmost importance in the ‘all events’ test, and not necessarily either the certainty of the time over which payment will be made or the identity of the payees.” “[W]e cannot see what difference it makes that the refunds here were to a class of customers some or many members of which may have been different individuals from those who paid the higher rates ordered by the Commission.” Illinois Power Co. v. Commissioner, 792 F.2d 683, 689 (7th Cir.1986).
Here, as was the situation with the progressive slot machines involved in United States v. Hughes Properties, Inc., 476 U.S. 593, 106 S.Ct. 2092, 2096, 90 L.Ed.2d 569 (1986), the taxpayer’s obligation to pay the refund was “definitely fixed” at the end of each fiscal year in which the surcharges were received. Moreover, the total amount to be refunded could not merely “be determined with reasonable accuracy” — the standard under the Treasury Regulations— but could be ascertained exactly. It was the total additional amount paid during that year by Iowa Southern’s customers through the surcharges.