The U.S. Tax Court today issued an opinion concluding that an electric power corporation that had sought to manage its taxable gain of $1.6 billion from the sale of fossil fuel power plants in 1999—through a series of like-kind exchanges using sale-leaseback strategies entered into between the taxpayer and unrelated third parties (tax-exempt public utilities)—did not satisfy the like-kind exchange requirements of section 1031 and that the agreements it entered into and involving the public utilities were not true leases, but were loans because the transactions did not transfer the benefits and burdens of ownership to the taxpayer.
The case is Exelon Corp. v. Commissioner, 147 T.C. No. 9 (September 19, 2016). Read the 176-page opinion [PDF 547 KB] of which 93 pages present the factual background in this case.
The Tax Court’s briefly summarized the facts in this case as follows:
The IRS issued deficiency notices for 1999 and for 2001. For 1999, the IRS determined a deficiency in tax exceeding of $431 million and a penalty under section 6662(a) exceeding $86 million. The Tax Court upheld the deficiency determination and penalty assessment for 1999.
Concerning the 2001 tax year, the Tax Court upheld that deficiency determination and concluded that the taxpayer:
This discussion simply sets forth the ultimate findings in this case, and is based on a preliminary reading of the court’s opinion as issued late this afternoon.
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