Legal Alert: IRS provides additional guidance on cost of removal, salvage and normalization
Posted on Oct 20, 2021 in Energy Tax
In PLR 202141001 (July 15, 2021) the IRS expanded upon the guidance it provided in PLR 202033002 (Aug. 14, 2020) regarding the proper ratemaking treatment of cost of removal (COR) and salvage under the normalization rules. As explained in our alert, the IRS:
- Reaffirmed that COR is not subject to the normalization rules, but salvage must be normalized.
- The computation of the reversal of the excess tax reserve created by the rate Tax Cuts and Jobs Act (TCJA)1 by taking into account the COR component of depreciation is inconsistent with the normalization rules.
- Conversely, the computation of the reversal of the excess tax reserve created by the TCJA taking into account the salvage value component of depreciation, but not COR, complies with the normalization rules.
Read the full legal alert here.