-42-
environmental system. Respondent concedes that petitioner
reasonably accumulated $21,616 in 1988 and $139,868 in 1989 for
pollution control (the lesser of the category one projected
expenses in 1988 and 1989 and the actual expenses in the year
immediately after the projections). Respondent argues that
petitioner did not anticipate spending large amounts for
pollution control in 1989 or accumulate large amounts for this
purpose until 1992.
The dike ruptured in October 1988, about 6 months before the
end of fiscal year 1989. Petitioner began to accumulate earnings
and profits for pollution control in 1987 because it knew it had
problems with its animal waste control system. Petitioner
projected that it needed to accumulate $50,000 in category two to
improve its pollution control in fiscal year 1987, $550,000 in
fiscal year 1988 ($50,000 in category one and $500,000 in
category two), and $1,000,000 in fiscal year 1989 ($500,000 in
category one and $500,000 in category two). Petitioner had
projected before the dike broke that it would spend these
amounts. After the dike broke, petitioner projected that it
would spend much more to fix its system to comply with DER; but
petitioner still underestimated the cost. Petitioner projected
that it would spend more than it actually spent for category one,
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