114 T.C. No. 35
UNITED STATES TAX COURT
MIDAMERICAN ENERGY COMPANY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 22728-97, 22729-97, Filed June 30, 2000.
22730-97, 22731-97.
P is a public utility engaged in the retail
distribution of natural gas, electricity, and related
services. In 1987, in response to the enactment of
sec. 451(f), I.R.C., P modified its method of
accounting for tax purposes to coincide with its
financial and regulatory accounting method and made a
sec. 481 adjustment.
Federal income tax rates were reduced in 1986
pursuant to the Tax Reform Act of 1986, Pub. L. 99-514,
sec. 821, 100 Stat. 2372, creating an excess in
deferred Federal income tax. P was required to adjust
utility rates from 1987 through 1990 to compensate for
this overcollection.
Held: P’s method of accounting for utility
services from the unbilled period violates sec. 451(f)
and must be disallowed. Held, further, P must adjust
the sec. 481 adjustment it made in 1986 to include
revenue attributable to gas costs from the unbilled
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