Comments on proposed regulations relating to application of normalization requirements to consolidated tax adjustments.

• Author: Ezrati, Lester D.

Comments on Proposed Regulations Relating to Application of Normalization Requirements to Consolidated Tax Adjustments

On February 25, 1991, Tax Executives Institute filed comments with the Internal Revenue Service on the application of the normalization requirements of sections 167(l) and 168(i)(9) of the Code to utility companies that file consolidated federal income tax returns. The proposed regulations address the extent to which certain ratemaking procedures and adjustments that are based on tax savings attributable to the filing of a consolidated return will be treated as inconsistent with the Code's normalization requirements. The Institute's comments were prepared under the aegis of TEI's Federal Tax Committee, whose chair is Lester D. Ezrati of the Hewlett-Packard Co. Larry J. Newsome of Florida Progress Corporation contributed materially to the preparation of the submission.

On behalf of Tax Executive Institute, I am pleased to submit these comments on the Internal Revenue Service's proposed regulations on the application of the normalization requirements of sections 167(l) and 168(i)(9) of the Internal Revenue Code to utility companies that file consolidated federal income tax returns. Specifically, the proposed regulations (PS-107-88) establish the extent to which certain ratemaking procedures and adjustments that are based on tax savings attributable to the filing of a consolidated return will be treated as inconsistent with the Code's normalization requirements.

The proposed regulations, which were issued on November 20, 1990, were published in the Federal Register on November 27, 1990 (55 Fed. Reg. 49294), and in the December 10, 1990, issue of the Internal Revenue Bulletin (1990-50 I.R.B. 10).(1*) A public hearing on the regulations was held on February 8, 1991.

TEI supports the issuance of proposed regulations in order to provide guidance to utility taxpayers, as well as to regulatory commissions, on the extent to which consolidated tax adjustments will be deemed to violate the normalization provisions of section 168(i)(9). Although the regulations primarily involve issues relating to the operation of the Code's normalization requirements (which affect a discrete class of taxpayers and require special expertise), the regulations also implicate several general policy issues. In the comments that follow, TEI addresses those policy issues and also comments on those areas of the regulations where additional guidance should be provided.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our nearly 4,600 members represent more than 2,000 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayer and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works - one that evinces solid tax policy, that taxpayers can comply with, and that the IRS can audit.

Members of TEI are responsible for managing the tax affairs of their companies on a day-to-day basis, contending daily with the provisions of the tax laws relating to the operations of business enterprises. A significant number of the Institute's members work for corporations that are affected by the proposed regulations relating to the application of the Code's normalization requirements to utility companies filing consolidated returns. We believe that the diversity and professional training of...