Temporary Utility Rate Increases

Temporary Utility Rate Increases

November 01, 2010

Temporary utility rate increases are not compensation for storm losses, the IRS said in an internal memo. The conclusion is important because it let the utility deduct the storm losses. Losses compensated by insurance or otherwise are not deductible. The public utility commission let the utility add a temporary surcharge to utility bills to recover the losses. However, the IRS national office concluded in an internal memo made public in late September that this should not prevent the utility from deducting its casualty losses as it was in no different position from other business that increase prices to recover the amount of the loss. “Arguably the result should not differ because a business’ rates are set by a government regulator rather than the market,” the agency said. The memo went to an IRS appeals officer handling the issue on audit. It is ILM 201036001.

By Keith Martin