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overrecoveries of $2,419,002, $509,206, and $1,141,079,
respectively. Petitioner included the overrecoveries in income
and deducted the underrecovery on its consolidated Federal income
tax returns for these years. Respondent has denied petitioner’s
request to exclude the overrecoveries from gross income.
Discussion
Application of Section 1341
Petitioner argues that it is entitled to section 1341
treatment for the amount by which Florida Power reduced utility
rates in 1987 and 1988 to compensate for excess deferred Federal
income taxes. Section 1341 provides in pertinent part:
SEC. 1341(a). In General.--If–-
(1) an item was included in gross income for
a prior taxable year (or years) because it
appeared that the taxpayer had an unrestricted
right to such item;
(2) a deduction is allowable for the taxable
year because it was established after the close of
such prior taxable year (or years) that the
taxpayer did not have an unrestricted right to
such item or to a portion of such item; and
(3) the amount of such deduction exceeds
$3,000,
then the tax imposed by this chapter for the taxable
year shall be the lesser of the following:
(4) the tax for the taxable year computed
with such deduction; or
(5) an amount equal to–-
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