ComEd 2015 Annual Report Download - page 361

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Description of tax years that remain open to assessment by major jurisdiction
Taxpayer Open Years
Exelon (and predecessors) and subsidiaries consolidated Federal income tax returns 1999, 2001-2014
Exelon and subsidiaries Illinois unitary income tax returns 2007-2014
Constellation combined New York corporate income tax returns 2010-March 2012
Various separate company Pennsylvania corporate net income tax returns 2010-2014
BGE Maryland corporate net income tax returns 2011-2014
Various Exelon Maryland corporate net income tax returns 2012-2014
Various Constellation (Non-BGE) Maryland corporate net income tax returns 2011-2014
Other Tax Matters
Like-Kind Exchange
Exelon, through its ComEd subsidiary, took a position on its 1999 income tax return to defer approximately $1.2 billion of tax gain on the
sale of ComEd’s fossil generating assets. The gain was deferred by reinvesting a portion of the proceeds from the sale in qualifying replacement
property under the like-kind exchange provisions of the IRC. The like-kind exchange replacement property purchased by Exelon included interests
in three municipal-owned electric generation facilities which were properly leased back to the municipalities. The IRS disagreed with this position
and asserted that the entire gain of approximately $1.2 billion was taxable in 1999.
Exelon has been unable to reach agreement with the IRS regarding the dispute over the like-kind exchange position. The IRS has asserted
that Exelon’s purchase and leaseback transaction is substantially similar to a leasing transaction, known as a SILO, which the IRS does not
respect as the acquisition of an ownership interest in property. A SILO is a “listed transaction” that the IRS has identified as a potentially abusive
tax shelter under guidance issued in 2005. Accordingly, the IRS has asserted that the sale of the fossil plants followed by the purchase and
leaseback of the municipal owned generation facilities does not qualify as a like-kind exchange and the gain on the sale is fully subject to tax. The
IRS has also asserted a penalty of approximately $90 million for a substantial understatement of tax.
Exelon disagrees with the IRS and continues to believe that its like-kind exchange transaction is not the same as or substantially similar to a
SILO. Although Exelon has been and remains willing to settle the disagreement on terms commensurate with the hazards of litigation, Exelon does
not believe a settlement is possible. Because Exelon believed, as of December 31, 2012, that it was more-likely-than-not that Exelon would prevail
in litigation, Exelon and ComEd had no liability for unrecognized tax benefits with respect to the like-kind exchange position.
On January 9, 2013, the U.S. Court of Appeals for the Federal Circuit reversed the U.S. Court of Federal Claims and reached a decision for
the government in Consolidated Edison v. United States. The Court disallowed Consolidated Edison’s deductions stemming from its participation
in a LILO transaction that the IRS also has characterized as a tax shelter.
In accordance with applicable accounting standards, Exelon is required to assess whether it is more-likely-than-not that it will prevail in
litigation. Exelon continues to believe that its transaction is not a SILO and that it has a strong case on the merits. However, in light of the
Consolidated Edison decision and Exelon’s current determination that settlement is unlikely, Exelon has concluded that
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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