Rev. Proc. 2020-39: Normalization rules for public utilities, 2017 tax law changes (TCJA)
Rev. Proc. 2020-39
The IRS today released an advance version of Rev. Proc. 2020-39 to clarify the normalization requirements for public utilities in light of changes to the corporate income tax by the 2017 U.S. tax law.
Rev. Proc 2020-39 [PDF 51 KB] applies with regard to public utilities subject to normalization that have “excess tax reserve” (the portion of the accumulated deferred income taxes (ADIT) reserve that reflects the difference in the corporate income tax rates due to accelerated depreciation) resulting from the corporate tax rate reduction from 35% to 21% by the U.S. 2017 tax law (Pub. L. No. 115-97 or the law that is often referred to as the “Tax Cuts and Jobs Act” (TCJA)).
“Normalization” is a system of accounting used by regulated public utilities to reconcile the tax treatment of accelerated depreciation of public utility assets with their regulatory treatment. The use of normalization is required for a utility to take advantage of the accelerated cost recovery system under section 168 for public utility property. Under normalization, a utility receives the tax benefit of accelerated depreciation in the early years of an asset’s regulatory useful life and passes that benefit through to ratepayers ratably over the regulatory useful life of the asset in the form of reduced rates.
© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.