Corporate Tax Rate Changes on the Horizon… Again! What Utilities Need to Know

As the 2024 election season gains momentum, regulated utilities are facing the prospect of significant policy shifts that could dramatically impact their financial landscapes. Vice President Kamala Harris has recently announced that if elected, she plans to raise the corporate tax rate to 28%. This proposal has raised alarms among tax leaders and CFOs within the utility sector, as the potential changes could lead to substantial adjustments in deferred tax liabilities.

IRS Rules Salvage is Protected, Cost of Removal is Not

On October 15, the IRS issued PLR 202141001 for regulated electric utilities. In its ruling, the IRS reiterated earlier assertions that the net deferred tax asset (DTA) related to the cost of removal (COR) is not subject to normalization, but also added clarification that the deferred tax liability (DTL) and DTA from the salvage value is subject to normalization rules.

Corporate Tax Rate Change Implications for Utilities

The 117th United States Congress is now set following two runoff elections in Georgia which have given the Democratic party control over 50 seats in the Senate and the tie-breaking vote through Vice President-elect Kamala Harris. With control of both chambers of Congress and the Presidency, Democrats are now poised to pursue more ambitious policy changes, including a proposed increase to the corporate tax rate.

Revenue Procedure 2020-39 and the Future of Excess Deferred Income Taxes

On August 14, 2020, the Internal Revenue Service (IRS) issued Revenue Procedure 2020-39 to clarify normalization requirements following the corporate tax rate reduction provided in the Tax Cuts and Jobs Act (TCJA). Though this Revenue Procedure addressed several open questions posed by the utility industry, in some regards, the publication raised more questions than it answered.

Utilities face uncertainty on tax normalization

On May 7, 2019, the IRS released Notice 2019-33 which formally announced the agency’s intent to issue additional guidance regarding the normalization requirements of excess deferred income taxes which resulted from the decrease in the corporate income tax rate.