Dominion Resources, Inc. v. United States
2011 U.S. Claims LEXIS 212
| Fed. Cl. | 2011Background
- Dominion Resources, Inc. challenged Treasury Reg. § 1.263A-ll(e)(1)(ii)(B) (the associated-property rule) as applied to its 1996 Burns Point/Mount Storm improvements, arguing it conflicted with § 263A and was issued under APA procedures.
- Dominion completed burner replacements at Possum Point (Virginia) and Mount Storm (West Virginia), temporarily taking Units 4 and 3 out of service during installation.
- Under § 263A and 263A(f), Dominion capitalized interest related to production expenditures, including indirect costs; the associated-property rule requires inclusion of associated property in production expenditures.
- Dominion settled most issues with the IRS in 2007, agreeing to treat about half of burner costs as capital expenditures and half as repairs; Dominion later sought refunds and argued de minimis treatment for Mount Storm.
- The government counterclaimed seeking reopening of the settlement on grounds of miscalculation, which Dominion opposed; both sides moved for summary judgment with extensive stipulations of facts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the associated-property rule is valid under Chevron Step One. | Dominion contends Reg. § 1.263A-ll(e)(l)(ii)(B) conflicts with § 263A(f)(2) and § 263A(f)(4)(C). | The government argues the rule is a permissible interpretation of § 263A and consistent with its statutory text. | Chevron Step One: Reg. § 1.263A-ll(e)(1)(ii)(B) is not plainly inconsistent with § 263A text; split analysis requires Chevron Step Two evaluation. |
| Whether, under Chevron Step Two, the Reg. § 1.263A-ll(e)(1)(ii)(B) is a permissible construction of the statute. | Associated-property basis should not be included in production expenditures as it does not represent a production expenditure under 263A(f)(4)(C). | Treasury reasonably treated associated property as part of production expenditures to reflect avoided costs; Reg. aligns with intent of 263A and FAS 34 history. | Reg. § 1.263A-ll(e)(1)(ii)(B) survives Chevron Step Two; regulation is a permissible construction of the statute. |
| Whether the de minimis rule can be applied retroactively to Mount Storm. | Mount Storm costs should be eligible for de minimis treatment since a portion would be excluded from production expenditures. | De minimis rule is prospective and cannot be retroactively applied; Dominion did not raise it in refunds claim. | Retroactive application denied; de minimis claim barred by timing and substantial variance rules. |
| Whether the government may reopen the 2007 Settlement to adjust capitalized interest. | Settlement terms preclude reopening absent specific grounds; government cannot show fraud or miscalculation. | Settlement reserved rights to reopen for certain factors; government contends miscalculation. | Settlement cannot be reopened; counterclaim denied. |
Key Cases Cited
- Mayo Foundation for Med. Educ. & Research v. United States, 131 S. Ct. 704 (2011) (Chevron deference and agency interpretations in tax context)
- Lockheed Martin Corp. v. United States, 210 F.3d 1366 (Fed. Cir. 2000) (substantial variance rule; claim adequacy for refund)
- Cook v. United States, 599 F.2d 400 (Ct. Cl. 1979) (substantial variance doctrine in refund claims)
- Ottawa Silica Co. v. United States, 699 F.2d 1124 (Fed. Cir. 1983) (adequacy of refund claim to preserve issues)
- Burlington Northern Santa Fe Corp. v. United States, 684 F.2d 866 (Ct. Cl. 1982) (substantial variance and refund claim requirements)
- Marandola v. United States, 518 F.3d 913 (Fed. Cir. 2008) (refund claim adequacy; de minimis context)
- GHS Health Care Maint. Org. v. United States, 536 F.3d 1293 (Fed. Cir. 2008) (Chevron Step Two deference in tax regulatory context)
- Ebert v. United States, 66 F. Supp. 287 (Fed. Cl. 2005) (tax refund burden and proof standards)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard; burden on movant)