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ordinary and necessary business expense deductible under section
162.
Respondent argues that there is a difference between a mere
rate reduction on future sales to take into account
overrecoveries in a previous year and an expense for which a
deduction is allowable. See, e.g., Roanoke Gas Co. v. United
States, 977 F.2d 131 (4th Cir. 1992); Iowa S. Utils. Corp. v.
United States, 841 F.2d 1108 (Fed. Cir. 1988); Southwestern
Energy Co. v. Commissioner, 100 T.C. 500 (1993).
In Iowa S. Utils. Corp., a taxpayer utility collected a
surcharge from its customers in order to help finance the
construction of a new power plant. The regulatory agency
approved the surcharge on the condition that the surcharge would
be refunded by the taxpayer without interest to customers over
the next 30 years. The taxpayer argued that the obligation to
refund was a liability satisfying the all events test of section
461 and that it was entitled to a current deduction for the full
amount of the refunds it expected to make during the next
30 years. Iowa S. Utils. Corp. concerned tax years prior to the
date when the economic performance rules of section 461(h) went
into effect. The Court of Appeals held that the taxpayer did not
have a deductible liability to refund, but, instead, the refunds
resulted from a regulatory policy setting the allowable rates for
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