683 F.3d 233
5th Cir.2012Background
- Commissioner appeals a Tax Court decision in Entergy Corp. v. Comm’r concerning 1997–1998 foreign tax credits for the UK Windfall Tax.
- Windfall Tax is a 23% levy on profit-making value (average four-year profits times 9 minus flotation value) imposed on privatized UK utilities.
- Entergy paid the Windfall Tax and claimed an equivalent FTC of about $234 million; IRS disallowed the credit.
- Tax Court relied on PPL Corp. v. Comm’r and held the Windfall Tax creditable under I.R.C. § 901, applying the Treasury regulation 1.901-2’s predominant character test.
- This circuit affirms, holding the Windfall Tax, viewed in predominant character, is a creditable tax on excess profits and satisfies the real/receipts/net income requirements, despite Third Circuit’s contrary ruling in PPL.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Windfall Tax a creditable foreign income tax under §901? | Entergy—Windfall Tax is an excess-profits tax creditable under §901. | Commissioner—Tax is not creditable; text shows a tax on unrealized value. | Yes; Windfall Tax is creditable under §901. |
Key Cases Cited
- Inland Steel Co. v. U.S., 677 F.2d 72 (Ct. Cl. 1982) (text not determinative; foreign tax shape not dispositive of creditability)
- Bank of Am. Nat. Trust & Sav. Ass’n v. U.S., 459 F.2d 513 (Ct. Cl. 1972) (foreign tax form vs. substance; predominant character governs)
- PPL Corp. v. Comm’r, 665 F.3d 60 (3d Cir. 2011) ( Third Circuit held Windfall Tax not creditable under 1.901-2(a) based on gross receipts)