Commissioner of Internal Revenue v. Idaho Power Company

PETITIONER: Commissioner of Internal Revenue
RESPONDENT: Idaho Power Company
LOCATION: Tivoli Theater

DOCKET NO.: 73-263
DECIDED BY: Burger Court (1972-1975)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 418 US 1 (1974)
ARGUED: Feb 27, 1974
DECIDED: Jun 24, 1974

Frank Norton Kern - for respondent
Keith A. Jones - for petitioner

Facts of the case


Media for Commissioner of Internal Revenue v. Idaho Power Company

Audio Transcription for Oral Argument - February 27, 1974 in Commissioner of Internal Revenue v. Idaho Power Company

Audio Transcription for Opinion Announcement - June 24, 1974 in Commissioner of Internal Revenue v. Idaho Power Company

Warren E. Burger:

The disposition of Number 73-263, Commissioner of Internal Revenue against Idaho Power Company, will be announced by Mr. Justice Blackmun.

Harry A. Blackmun:

This is a Federal income tax case coming to us from the United States Court of Appeals for the Ninth Circuit.

Idaho Power Company is a corporation tax payer.

It is a public utility engaged in the production and transmission and distribution and sale of electric energy in the State of Idaho.

In addition to all of this, the company for many years itself has engaged in construction of capital facilities, mainly transmission and distribution lines and connections between them.

It has not done all of its work of this kind and but it has done a major portion of it and it, thus, had scores of employees so engaged.

The case centers on tension or strain between two provisions of the Federal Internal Revenue Court.

Section 167 allows a depreciation deduction from gross income with respect to property used in the taxpayer’s trader business or held for the production of income.

On the other hand, Section 263 disallows a deduction for any amount payed out for new buildings or for permanent improvements and there is still another section, 161, which makes the deduction provisions subject to certain exceptions including Section 263.

The issue here is whether the tax payer may assert depreciation on its transportation equipment such as cars and trucks, to the extent that, that depreciation relates to the construction of capital facilities.

The depreciation on the taxpayer’s books was allocated to capital rather than income, but this was required as a matter of accounting by the Federal Power Commission and the Idaho Public Utilities Commission.

Other cost of construction, such as wages, were similarly charge to capital.

In its income tax returns for 1962 and 63, Idaho Power claimed there is a deduction, the construction related depreciation on its automotive equipment.

It did not claim as deductions other construction related costs.

The Commissioner disallowed the deduction on a petition for redetermination to file with the tax court.

That court upheld the Commissioner.

The Ninth Circuit, however, reversed.

We granted certiorari because the Ninth circuit declined to follow a Court of Claims decision on the issue that appear to go the other way.

We reversed the Court of Appeals and hold that the equipment depreciation allocable to the taxpayer’s construction of capital facilities must be capitalized under Section 263 and is not allowable as a deduction under Section 167.

Our reasons for this conclusion are set forth in some detail in the opinion filed today.

I am authorized to say that Mr. Justice Douglas has filed a dissenting opinion.

Warren E. Burger:

Thank you, Mr. Justice Blackmun.