Dominion Resources, Inc. v. United States
2012 U.S. App. LEXIS 10980
| Fed. Cir. | 2012Background
- Dominion supplied electricity and gas; it replaced coal burners and temporarily withdrew two units from service during improvements.
- During the withdrawal, Dominion incurred interest on debt; IRS treated some interest as capitalizable under § 1.263A-11(e)(1)(ii)(B), affecting deductions.
- Under a settlement, Dominion could deduct 50% and capitalize 50% of the disputed interest amount.
- The CFC held that Treasury Regulation § 1.263A-11(e)(1)(ii)(B) is a permissible construction of I.R.C. § 263A and that Treasury provided a reasoned State Farm-compliant explanation.
- The Court of Federal Claims later held the regulation invalid as applied to property temporarily withdrawn from service, reversing the CFC judgment.
- The focus is on whether the associated-property rule and its use of adjusted basis align with the avoided-cost rule under I.R.C. § 263A(f)(2).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Chevron step two viability of the rule | Dominion contends regulation is inconsistent with the avoided-cost rule. | United States argues regulation is a permissible construction. | Regulation not reasonable as applied; reversed on that basis. |
| Reasoned explanation under State Farm | Treasury failed to provide cogent explanation for the adjusted-basis approach. | Agency explained its rationale in rulemaking; State Farm satisfied. | State Farm requirement not satisfied; regulation invalid as applied. |
| Avoided-cost rule compliance | Adjusted basis can be part of production expenditures under avoided-cost rationale. | Adjusted basis represents avoided funds; regulation aligns with avoidance. | Regulation violates the avoided-cost principle by tying capitalization to adjusted basis. |
Key Cases Cited
- Mayo Foundation for Med. Educ. and Research v. United States, 131 S. Ct. 704 (U.S. 2011) (affirms application of Chevron deference to Treasury regulations)
- Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (U.S. 1984) (two-step framework for reviewing agency interpretations)
- Motor Vehicle Mfrs. Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (U.S. 1983) (State Farm requirement for a cogent explanation)
- Dominion Res., Inc. v. United States, 97 Fed. Cl. 239 (Fed. Cir. 2011) (CFC decision on regulation’s validity under I.R.C. § 263A)