ComEd 2015 Annual Report Download - page 362

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
subsequent to December 31, 2012, it is no longer more-likely-than-not that its position will be sustained. As a result, in the first quarter of 2013,
Exelon recorded a non-cash charge to earnings of approximately $265 million, which represents the amount of interest expense (after-tax) and
incremental state income tax expense for periods through March 31, 2013 that would be payable in the event that Exelon is unsuccessful in
litigation. Of this amount, approximately $172 million was recorded at ComEd. Exelon intends to hold ComEd harmless from any unfavorable
impacts of the after-tax interest amounts on ComEd’s equity. As such, ComEd recorded on its consolidated balance sheet as of March 31, 2013,
a $172 million receivable and non-cash equity contributions from Exelon. Exelon and ComEd will continue to accrue interest on the unpaid tax
liabilities related to the uncertain tax position, and the charges arising from future interest accruals are not expected to be material to the annual
operating earnings of Exelon or ComEd. In addition, ComEd will continue to record non-cash equity contributions from Exelon in the amount of the
net after-tax interest charges attributable to ComEd in connection with the like-kind exchange position. Exelon continues to believe that it is
unlikely that the IRS’s assertion of penalties will ultimately be sustained and therefore no liability for the penalty has been recorded.
On September 30, 2013, the IRS issued a notice of deficiency to Exelon for the like-kind exchange position. Exelon filed a petition on
December 13, 2013 to initiate litigation in the United States Tax Court and the trial took place in August of 2015. Exelon was not required to remit
any part of the asserted tax or penalty in order to litigate the issue. While the Tax Court could reach its decision as early as 2016, the litigation
could take three to five years if an appeal is necessary. Decisions in the Tax Court are not controlled by the Federal Circuit’s decision in
Consolidated Edison.
In the first quarter of 2014, Exelon entered into an agreement to terminate its investment in one of the three municipal-owned electric
generation properties in exchange for a net early termination amount of $335 million. In connection with the termination, Exelon deposited $65
million with the IRS, including $35 million by ComEd. The deposit can be redesignated to any tax year, if necessary, and may be used to satisfy
any amounts owed as a result of the litigation.
In the event of a fully successful IRS challenge to Exelon’s like-kind exchange position, the potential tax and after-tax interest, net of the
deposit discussed above and exclusive of penalties, that could become currently payable as of December 31, 2015 may be as much as $760
million, of which approximately $280 million would be attributable to ComEd after consideration of Exelon’s agreement to hold ComEd harmless.
Interest will continue to accrue until such time as payment is made. An appeal of an adverse decision in the Tax Court would necessitate either
the posting of a bond or the payment of the tax and interest for the tax years before the court. A final appellate decision could take several years.
Accounting for Generation Repairs (Exelon and Generation)
On April 30, 2013, the IRS issued Revenue Procedure 2013-24 providing guidance for determining the appropriate tax treatment of costs
incurred to repair electric generation assets. Generation changed its method of accounting for deducting repairs in accordance with this guidance
beginning in the 2014 tax year. The adoption of the new method resulted in Generation recording a cash tax detriment of approximately $120
million in 2014.
Long-Term State Tax Apportionment (Exelon and Generation)
The long-term state tax apportionment was revised in the fourth quarter of 2015 pursuant to Exelon’s long-term state tax apportionment
policy, resulting in the recording of a deferred state tax
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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