Pacific Power & Light Company, a Maine Corporation v. United States

This federal income tax case presents the novel question whether section 167(a) of the Internal Revenue Code of 1954 (I.R.C.) authorizes a taxpayer to deduct from gross income the difference between accelerated and straight-line depreciation of equipment owned by taxpayer and used by it to construct its own capital facilities, or whether the capitalization provision of I.R.C. § 263(a)(1) prohibits the deduction. We affirm the district court’s holding, premised on Commissioner v. Idaho Power Co., 418 U.S. 1 , 94 S.Ct. 2757 , 41 L.Ed.2d 535 (1974) (Idaho Power), that where any depreciation of equipment attributable to construction of taxpayer’s facilities must be capitalized under I.R.C. § 263(a)(1), no part of such depreciation may be deducted from gross income under I.R.C. § 167(a).

The parties stipulated to the following relevant facts. Pacific Power & Light Company (Pacific Power), a public utility incorporated in Maine, is engaged in the business of generating, transmitting, distributing, and selling electricity in Oregon, Wyoming, Washington, California, Montana, and Idaho.

During the years in issue, 1962 through 1966, Pacific Power constructed for its own use new power…