Lykes Energy, Inc. and Subsidiaries - Page 10




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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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