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section 1.1341-1(f)(2)(i), Income Tax Regs., does nothing more
than create an exception to the exclusion for the sale of
inventory items, also found in section 1341(b)(2). Therefore,
although a public utility will not be excluded from the benefits
of section 1341 because its refund stemmed from a sale of
property characterized as inventory, it still must satisfy all
the requirements of section 1341(a) before it is eligible for
relief under the statute. Because the refunds by Florida Power
do not meet the deduction requirement, petitioner is not eligible
for section 1341 relief.
Inclusion of Overrecovered Costs in Income
The second issue addresses the proper tax treatment of a
portion of Florida Power’s receipts constituting an overrecovery
of fuel and energy conservation costs.
Respondent argues that the claim of right doctrine applies
to require inclusion of overrecoveries in income under section
61(a). According to respondent’s view, petitioner would be
entitled to a deduction in a subsequent year if and when the
overrecoveries are actually refunded to customers. Respondent
contends that overrecoveries are income because the obligation to
refund was contingent on no underrecoveries arising in the later
months of the recovery period that would reduce or eliminate the
amount to be refunded. Respondent claims that one should look to
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