Pepco could get nearly $16 million tax refund under D.C. Council bill

Correction: An earlier version of this story inaccurately listed D.C. Council member Muriel Bowser as a co-introducer of the tax refund bill. The story has been corrected.

Pepco is seeking D.C. legislation that would allow it to collect nearly $16 million in tax refunds, reflecting adjustments to returns it filed more than a decade ago.

Seven D.C. Council members, led by Chairman Phil Mendelson (D), introduced the “Tax Clarity Equity Amendment Act of 2013” on Tuesday. The two-page bill does not mention Pepco directly, but Mendelson and co-introducerJack Evans (D-Ward 2), chairman of the Finance and Revenue Committee, acknowledged that the measure was introduced at Pepco’s behest.

As drafted, the bill would entitle taxpayers whose income for 2000 or earlier has been “changed or corrected” by federal authorities to receive refunds in the form of tax credits starting in 2017.

According to council officials and documents, the changes would allow Pepco to claim reimbursement for what it says are overpayments of a corporate franchise tax for 1998 through 2000.

The utility refiled its tax returns for those years in 2011, after the Internal Revenue Service completed an audit of the company’s tax filings for 1996 through 2002. The audit resulted in the company shifting deductions — mainly related to a December 2000 sale of power-generation facilities — to earlier years. But the D.C. Office of Tax and Revenue has ruled that those years are outside the District’s statute of limitations on tax refunds.

The issue was detailed in an April 24 memorandum drafted on Pepco’s behalf by lawyer Stephen P. Kranz and sent to D.C. Chief Financial Officer Natwar M. Gandhi.

Although the adjustments resulted in “little aggregate change to Pepco’s taxable income,” Kranz wrote, they caused the company to pay additional tax in the later years without receiving — because of the statute of limitations — offsetting refunds for the earlier years.

Myra Oppel, a spokeswoman for Pepco Holdings, said the matter is “an issue of unintended inequity and unfairness that affects Pepco and other taxpayers.”

“We firmly believe that no taxpayer should have to pay taxes on the same income twice, and this legislation would clarify the issue,” she said.

David Umansky, a spokesman for Gandhi, acknowledged that the utility had approached the tax office about a refund and that tax officials denied it, citing legal impediments.

“The law is the law,” he said. “For those refunds to be paid, the law has to change.”

Mendelson said the company tried to have the law changed through an addition to the city’s 2014 budget legislation, which is set for a final vote next week. But he balked at including the measure in the budget bill, where it would not have received a hearing or much other public scrutiny.

“Everything suggests that the refund is legitimate, but we ought to deal with it straight up,” he said.

The refund push comes three months after Pepco asked District regulators to approve a $52 million rate increase for its D.C. customers. It comes about a month after company officials endorsed a $1 billion plan, developed by a mayoral task force, to bury some of the city’s most vulnerable high-voltage lines.

What remains unclear is how much the change in D.C. law could cost the city beyond the $15.8 million refund claimed by Pepco.

Umansky said the office is aware of other individuals and companies that have sought similar relief over the years, but he had no estimate of how many taxpayers might be affected or how much they might be owed.

City finance officials will study the bill’s fiscal impact in the coming weeks. But the bill would not apply the tax credit until 2017 — a choice that appears calibrated to delay the bill’s fiscal impact beyond the four-year period typically contemplated by the CFO’s office.

The bill’s other co-introducers are Yvette M. Alexander (D-Ward 7), Marion Barry (D-Ward 8), Anita Bonds (D-At Large), and Kenyan R. McDuffie (D-Ward 5).

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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