MidAmerican Energy Company - Page 20




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            item.  Respondent argues that petitioner fails to meet this                                
            requirement because it had an actual, and not an apparent,                                 
            unrestricted right to income from utility fees that it collected                           
            prior to 1987.  See, e.g., Kraft v. United States, 991 F.2d 292,                           
            299 (6th Cir. 1993); Bailey v. Commissioner, 756 F.2d 44, 47 (6th                          
            Cir. 1985); Van Cleave v. United States, 718 F.2d 193, 196-197                             
            (6th Cir. 1983); Prince v. United States, 610 F.2d 350, 352 (5th                           
            Cir. 1980).  Petitioner asks us to adopt the substantial nexus                             
            test recently adopted in two separate Federal District Court                               
            opinions on fact patterns nearly identical to the one at hand.                             
            See Dominion Resources, Inc. v. United States, 48 F. Supp.2d 527                           
            (E.D. Va. 1999); WICOR, Inc. v. United States, 84 AFTR2d 99-6905,                          
            99-2 USTC par. 50,951 (E.D. Wis. 1999).  We do not resolve this                            
            dispute over the proper test, however, because of our conclusion                           
            that petitioner does not satisfy another requirement for relief                            
            under section 1341.                                                                        
                  The second requirement that petitioner must satisfy, in                              
            order to qualify for relief under section 1341, is that a                                  
            deduction must be allowable in the year of return for the refunds                          
            that were made.  Respondent argues that petitioner fails to meet                           
            this requirement because petitioner’s rate reductions from 1987                            
            to 1990 do not qualify as deductible expenses within the meaning                           
            of section 1341(a)(2).  Petitioner maintains that the right to                             
            claim a deduction under section 162 for funds or property                                  






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