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test. It did not receive the FEECA receipts in trust. A trust
requires that (1) a person (2) take title to property
(3) pursuant to an explicit directive (4) to preserve or protect
the property. See Johnson v. Commissioner, 108 T.C. 448, 476
(1997); sec. 301.7701-4(a), Proced. & Admin. Regs. Here, the
purported settlors, namely People's customers, never intended to
create a trust or even knew they were funding the FEECA programs.
People's received the FEECA receipts from its customers as
payments for gas, and the customers, at the time of payment, did
not know that any part of the payments was for other than their
gas use. In fact, PSC rules explicitly barred People's from
telling its customers that a portion of each payment was funding
the FEECA programs.
Nor did People's satisfy the second prong of the Seven-Up
test, which requires that it expend the funds without profit,
gain, or benefit. The subsidies paid by People's benefited it
significantly in that they encouraged utility users to purchase
gas appliances from People's. The effect of the FEECA programs
was that they served to shift the cost of these subsidies from
People's to its rateholders. The FEECA programs also increased
People's rate base, number of customers, and sales.
We turn to the second issue; namely, whether People's must
capitalize the FEECA expenditures. Respondent answers this
question in the affirmative as to all the disputed expenditures.
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