New Safe Harbor for Utilities that Inadvertently Violate ITC and MACRS Normalization Rules (Rev. Proc. 2017-47)

The IRS has provided a safe harbor for public utilities that are inadvertently or unintentionally using a practice or procedure that is inconsistent with the normalization rules relating to the investment tax credit and Modified Accelerated Cost Recovery System. If the safe harbor applies, the IRS will not assert that the practice constitutes a violation of the normalization rules and will not deny the utility the benefits of the investment tax credit or accelerated depreciation.

Comment. The normalization rules prevent a public utility from diverting the tax savings generated by the investment tax credit and accelerated depreciation from capital investment into lower rates for customers.

The safe harbor applies if the utility, upon recognizing its failure to comply with the normalization rules, changes to a consistent practice or procedure at the next available opportunity in a manner that totally reverses the effect of the inconsistency. In general, the next available opportunity is any currently pending rate proceeding or, if there is no current proceeding, the next rate proceeding. The utility’s regulator must approve the change and retain documentation relating to both the prior inconsistent and newly adopted practice or procedure.

The safe harbor does not apply if the regulator specifically considered the application of the normalization rules to the inconsistent practice or procedure in establishing the utility’s rates.

The safe harbor is effective for tax years ending on or after December 31, 2016. However, the IRS will not challenge an inadvertent or inconsistent practice or procedure in an earlier tax year if the safe harbor requirements are satisfied in that tax year.

Rev. Proc. 2017-47

Other References:

Code Sec. 50

CCH Reference – ¶4772.64

Code Sec. 168

CCH Reference – 2017FED ¶11,070.57

Tax Research Consultant

CCH Reference – TRC DEPR: 6,154

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CCHTaxGroup

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