AmerGen Energy Co. Ex Rel. Exelon Generation Co. v. United States
2015 U.S. App. LEXIS 3757
| Fed. Cir. | 2015Background
- AmerGen purchased three nuclear plants (Three Mile Island Unit-1, Clinton, Oyster Creek) in 1999–2000, assuming future decommissioning obligations and paying $93 million in purchase price. None of the plants was decommissioned during the 2001–2003 tax years.
- Prior owners had established qualified (§468A) and nonqualified decommissioning trust funds; AmerGen received transferred funds (~$974M) but did not make post-acquisition contributions.
- AmerGen (accrual-basis taxpayer) sought to include assumed future decommissioning liabilities (~$1.69B in litigation) in the tax basis of acquired assets for 2001–2003, reducing taxable income via depreciation/amortization.
- The IRS denied the basis inclusion and issued private letter rulings that AmerGen could not treat future decommissioning liabilities as basis at purchase because economic performance under I.R.C. §461(h) had not occurred.
- The Court of Federal Claims granted summary judgment for the government; the Federal Circuit reviews de novo and affirms, holding §461(h) applies and economic performance occurs when AmerGen performs the decommissioning services (years later), so liabilities were not incurred in 2001–2003.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether I.R.C. §461(h) (economic performance/all-events test) applies to determine when assumed liabilities are "incurred" for basis of acquired assets | §461(h) should not apply; basis governed by Crane/contingency test (noncontingent liabilities includable at purchase) | §461(h) applies “for purposes of this title” to any item; it limits when liabilities are incurred for basis | Held: §461(h) applies to determine when liabilities are incurred for basis calculation |
| When economic performance occurs for decommissioning liabilities assumed on purchase | Economic performance occurred on transfer/conveyance (liability arose when sellers conveyed plants) | Economic performance occurs when taxpayer performs required services (decommissioning) under §461(h)(2)(B) | Held: §461(h)(2)(B) governs; economic performance occurs as AmerGen performs decommissioning (not at purchase) |
| Whether pre-acquisition transfer of qualified/nonqualified funds makes basis inclusion appropriate | Inclusion still proper despite transferred funds; basis should reflect assumed obligations | Allowing inclusion would circumvent §468A and §461(h) Congress enacted for nuclear liabilities | Held: Allowing inclusion would circumvent statutory scheme; §468A provides limited alternative treatment, so inclusion denied |
| Remedy: whether AmerGen may claim increased basis and associated deductions for 2001–2003 | Basis should be increased to include assumed decommissioning liabilities, yielding deductions/less taxes | Denial of basis inclusion for those years because liabilities not yet incurred | Held: AmerGen may not include future decommissioning liabilities in basis for 2001–2003; judgment affirmed |
Key Cases Cited
- Crane v. Commissioner, 331 U.S. 1 (Supreme Court 1947) (purchase-price basis may include liabilities assumed by buyer)
- United States v. Anderson, 269 U.S. 422 (Supreme Court 1926) (all-events test for accrual taxpayers: liability deemed incurred when all events fix liability and amount can be determined)
- Detroit Edison Co. v. Commissioner, 319 U.S. 98 (Supreme Court 1943) (basis equals cost to taxpayer)
- Denver & Rio Grande W. R.R. Co. v. United States, 505 F.2d 1266 (Ct. Cl. 1974) (liabilities assumed in purchase can be part of basis in certain circumstances)
- Abbott Labs. v. United States, 573 F.3d 1327 (Fed. Cir. 2009) (standard of review for Claims Court summary judgment)
- Qantas Airways Ltd. v. United States, 62 F.3d 385 (Fed. Cir. 1995) (statutory interpretation reviewed de novo)