WATER UTILITIES CHARGE that the US government reneged on a deal involving tax treatment of water interties. Homeowners require both a main water line and a wastewater line to connect to the utility. Real estate developers building new subdivisions usually reimburse the utility for the cost. The IRS is studying whether water utilities should report the payments as income. This is clearly the correct treatment for electric and gas interties. However, water utilities worked out a special deal with Congress in 1996 where they were supposed not to have to report certain amounts as income in exchange for less generous tax depreciation on their assets. There is disagreement over whether the deal covered these particular payments. The National Association of Regulatory Utility Commissioners, or NARUC, sent a resolution to Treasury in mid-December endorsing the utility position.