XEL » Topics » Tax Matters

This excerpt taken from the XEL 8-K filed Dec 13, 2007.
Tax Matters In April 2004, Xcel Energy filed a lawsuit against the U.S. government in the U.S. District Court for the District of Minnesota to establish its right to deduct the interest expense that had accrued during tax years 1993 and 1994 on policy loans related to its COLI policies that insured the lives of certain PSCo employees. These policies are owned by PSRI, a wholly owned subsidiary of PSCo.

 

After Xcel Energy filed this suit, the IRS sent three statutory notices of deficiency of tax, penalty and interest for 1995 through 2002. Xcel Energy filed U.S. Tax Court petitions challenging those notices. PSRI also continued to take deductions for interest expense on policy loans for subsequent years. The total exposure for the tax years 1993 through 2007 was approximately $583 million, which included income tax, interest and potential penalties.

 

On June 19, 2007, Xcel Energy and the United States reached a settlement in principle regarding this dispute.

 

On Sept. 20, 2007, Xcel Energy submitted its formal offer in compromise and by letter dated Sept. 21, 2007, the United States accepted the terms of that settlement offer. The terms of the final settlement are essentially the same as the settlement in principle reached on June 19, 2007. The U.S. government’s letter terminates the tax litigation pending between the parties for tax years 1993-2002 and also specifies the agreed tax treatment for certain aspects of those policies for subsequent tax years.

 

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The essential financial terms of the final settlement, as accepted, are as follows:

 

1.                 Xcel Energy will pay the government a total of $64.4 million in full settlement of the government’s claims for tax, penalty, and interest for tax years 1993-2007.

 

2.                 Xcel Energy will pay that settlement amount as follows:

 

·                  $32.2 million of that amount will be satisfied by tax and interest amounts that Xcel Energy has paid or is deemed under the terms of the settlement to have made to the government with respect to tax years 1993 and 1994.

 

·                  Xcel Energy will satisfy the remaining settlement amount owed by paying the government $32.2 million by Oct. 31, 2007.

 

3.                 The total settlement amount will be allocated toward specified amounts of tax, penalty, and interest owed for 1993 and 1994 and other amounts of tax and interest owed for 1995.

 

4.                 Except as stated above, Xcel Energy will be entitled to claim COLI-related interest deductions for tax years 1995-2007.

 

5.              Xcel Energy will surrender the policies to its insurer by Oct. 31, 2007 without having to recognize a taxable gain on the surrender.

 

This excerpt taken from the XEL 10-Q filed Dec 13, 2007.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 5 to the consolidated financial statements for discussion regarding COLI

 

This excerpt taken from the XEL 10-Q filed Dec 13, 2007.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 5 to the consolidated financial statements for discussion of exposures regarding the tax deductibility of corporate-owned life insurance loan interest.

 

This excerpt taken from the XEL 10-Q filed Oct 26, 2007.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 4 to the consolidated financial statements for discussion regarding COLI

 

This excerpt taken from the XEL 8-K filed Aug 8, 2007.
Tax Matters — COLI — In April 2004, Xcel Energy filed a lawsuit against the U.S. government in the U.S. District Court for the District of Minnesota to establish its right to deduct the interest expense that had accrued during tax years 1993 and 1994 on policy loans related to its COLI policies that insured certain lives of PSCo employees.  These policies are owned by PSRI, a wholly owned subsidiary of PSCo.

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After Xcel Energy filed this suit, the IRS sent three statutory notices of deficiency of tax, penalty and interest for 1995 through 2002. Xcel Energy has filed U.S. Tax Court petitions challenging those notices.  PSRI also continued to take deductions for interest expense on policy loans for subsequent years.  The total exposure for the tax years in dispute and through 2007 is approximately $583 million, which includes income tax, interest and potential penalties.

On June 19, 2007, a settlement in principle was reached between Xcel Energy and representatives of the United States Government that would resolve this dispute.  The terms of the proposed settlement are as follows:

·                  Xcel Energy would pay the IRS $64.4 million (or approximately $56 million, net, after tax) in full settlement of all of the government’s claims for additional taxes, interest and penalties relating to these COLI plans for tax years 1993-2007.

·                  Xcel Energy would further agree to claim no additional deductions resulting from its COLI plans for any tax year after 2007 and to surrender its policies when the offer has been accepted in writing by the government.

·                  The government would permit Xcel Energy to surrender these policies without incurring any tax liability on any gain from that surrender.

·                  This settlement requires final approval from the IRS and the Department of Justice (DOJ). There is no guarantee that such approvals will be obtained.

·                  Among other things, the settlement process requires Xcel Energy to submit a written settlement offer setting forth the basic terms and for the DOJ Tax Division and the IRS to review that offer before they decide to accept or reject it.  Xcel Energy submitted this settlement offer to the government on July 2, 2007.

·                  It is expected that a final decision on the settlement will be reached during Xcel Energy’s third quarter of 2007.

The COLI case was set for trial on July 23, 2007.  Because a settlement in principle has been reached, the court has removed this case from the trial calendar.

As a result of the settlement in principle and management’s decision to surrender the COLI policies when the offer has been accepted in writing by the government, Xcel Energy reported earnings from PSRI and the settlement costs as discontinued operations in the second quarter of 2007.  See Note 3 for additional disclosure related to discontinued operations.

This excerpt taken from the XEL 10-Q filed Jul 27, 2007.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 4 to the consolidated financial statements for discussion of exposures regarding the tax deductibility of corporate-owned life insurance loan interest.

 

This excerpt taken from the XEL 10-Q filed Apr 27, 2007.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 4 to the accompanying consolidated financial statements for discussion of exposures regarding the tax deductibility of corporate-owned life insurance loan interest.

 

This excerpt taken from the XEL 10-K filed Feb 23, 2007.
Tax Matters In April 2004, Xcel Energy filed a lawsuit against the U.S. government in the U.S. District Court for the District of Minnesota to establish its right to deduct the interest expense that had accrued during tax years 1993 and 1994 on policy loans related to the COLI policies.

After Xcel Energy filed this suit, the IRS sent two statutory notices of deficiency of tax, penalty and interest for 1995 through 1999. Xcel Energy has filed U.S. Tax Court petitions challenging those notices. Xcel Energy anticipates the dispute relating to its interest expense deductions will be resolved in the refund suit that is pending in the Minnesota Federal District Court and the Tax Court petitions will be held in abeyance pending the outcome of the refund litigation. In the third quarter of 2006, Xcel Energy also received a statutory notice of deficiency from the IRS for tax years 2000 through 2002 and timely filed a Tax Court petition challenging the denial of the COLI interest expense deductions for those years.

On Oct. 12, 2005, the district court denied Xcel Energy’s motion for summary judgment on the grounds that there were disputed issues of material fact that required a trial for resolution. At the same time, the district court denied the government’s motion for summary judgment that was based on its contention that PSCo had lacked an insurable interest in the lives of the employees insured under the COLI policies. However, the district court granted Xcel Energy’s motion for partial summary judgment on the grounds that PSCo did have the requisite insurable interest.

On May 5, 2006, Xcel Energy filed a second motion for summary judgment. On Aug. 18, 2006, the U.S. government filed a second motion for summary judgment. On Feb. 14, 2007, the Magistrate Judge issued his Report and Recommendation (R&R) to the Judge concerning both motions. In his R&R the Magistrate Judge recommends both motions be denied due to fact issues in dispute. Both parties will have an opportunity to file objections by March 5, 2007 to the Magistrate Judge’s recommendations. The Judge will then have broad authority to, among other things, accept or reject the recommendations in whole or in part. If both sides’ motions are ultimately denied, a trial is set to begin on July 24, 2007.

Xcel Energy believes that the tax deduction for interest expense on the COLI policy loans is in full compliance with the tax law. Accordingly, PSRI has not recorded any provision for income tax or related interest or penalties, and has continued to take deductions for interest expense on policy loans on its income tax returns for subsequent years. The litigation could require several years to reach final resolution. Defense of Xcel Energy’s position may require significant cash outlays, which may or may not be recoverable in a court proceeding. The ultimate resolution of this matter is uncertain and could have a material adverse effect on Xcel Energy’s financial position, results of operations and cash flows.

Should the IRS ultimately prevail on this issue, tax and interest payable through Dec. 31, 2006, would reduce earnings by an estimated $421 million. Xcel Energy has received formal notification that the IRS will seek penalties. If penalties (plus associated interest) also are included, the total exposure through Dec. 31, 2006, is approximately $499 million. In addition, Xcel Energy’s annual earnings for 2007 would be reduced by approximately $49 million, after tax, or 11 cents per share, if COLI interest expense deductions were no longer available.

This excerpt taken from the XEL 10-Q filed Oct 27, 2006.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 3 to the consolidated financial statements.

 

This excerpt taken from the XEL 10-Q filed Aug 3, 2006.

Tax Matters

See a discussion of tax matters associated COLI policies at Note 3 to the consolidated financial statements.

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This excerpt taken from the XEL 10-Q filed May 1, 2006.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 14 to the consolidated financial statements in Xcel Energy’s Annual Report on Form 10-K for the year ended Dec. 31, 2005.

 

This excerpt taken from the XEL 10-K filed Feb 27, 2006.
Tax Matters — In April 2004, Xcel Energy filed a lawsuit against the government in the U.S. District Court for the District of Minnesota to establish its right to deduct the policy loan interest expense that had accrued during tax years 1993 and 1994 on policy loans related to its company-owned life insurance (COLI) policies that insured certain lives of employees of PSCo.  These policies are owned and managed by PSR Investments, Inc. (PSRI), a wholly owned subsidiary of PSCo.

 

After Xcel Energy filed this suit, the IRS sent it two statutory notices of proposed deficiency of tax, penalty and interest for taxable years 1995 through 1999.  Xcel Energy then filed two Tax Court petitions challenging those notices.  Xcel Energy anticipates that the dispute relating to its claimed interest expense deductions for tax years 1993 and later will be resolved in the refund suit that is pending in the Minnesota federal district court and that the two Tax Court petitions will be held in abeyance pending the outcome of the refund litigation.

 

On Oct. 12, 2005, the district court denied Xcel Energy’s motion for summary judgment on the grounds that there were disputed issues of material fact that required a trial for resolution.  At the same time, the district court denied the government’s motion for summary judgment that was based on its contention that PSCo had lacked an insurable interest in the lives of the employees insured under the COLI policies.  However, the district court granted Xcel Energy’s motion for partial summary judgment on the grounds that PSCo did have the requisite insurable interest.  The case is expected to proceed to trial and the litigation could take another two or more years.

 

Xcel Energy believes that the tax deduction for interest expense on the COLI policy loans is in full compliance with the tax law. Accordingly, PSRI has not recorded any provision for income tax or related interest or penalties that may be imposed by the IRS, and has continued to take deductions for interest expense related to policy loans on its income tax returns for subsequent years.  As discussed above, the litigation could require several years to reach final resolution.  Defense of Xcel Energy’s position may require significant cash outlays, which may or may not be recoverable in a court proceeding.  Although the ultimate resolution of this matter is uncertain, it could have a material adverse effect on Xcel Energy’s financial position, results of operations and cash flows. 

 

Should the IRS ultimately prevail on this issue, tax and interest payable through Dec. 31, 2005, would reduce retained earnings by an estimated $361 million.  In 2004, Xcel Energy received formal notification that the IRS will seek penalties. If penalties (plus associated interest) also are included, the total exposure through Dec. 31, 2005, is approximately $428 million.  Xcel Energy annual earnings for 2006 would be reduced by approximately $44 million, after tax, or 10 cents per share, if COLI interest expense deductions were no longer available.

 

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This excerpt taken from the XEL 10-Q filed Oct 28, 2005.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 3 to the consolidated financial statements.

 

This excerpt taken from the XEL 8-K filed Oct 26, 2005.
Tax Matters – As previously disclosed in Note 3 to Xcel Energy’s financial statements in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, in April 2004, Xcel Energy filed a lawsuit in U.S. District Court for the District of Minnesota against the Internal Revenue Service (IRS) to establish its entitlement to deduct, for tax years 1993 and 1994, policy loan interest related to corporate-owned life insurance (COLI) policies on some current and former employees of PSCo.  These COLI policies are owned and managed by PSR Investments, Inc. (PSRI), a wholly owned subsidiary of PSCo.  In December 2004, Xcel Energy filed suit in U.S. Tax Court in Washington, D.C., for tax years 1995 through 1997 and again in March 2005 for tax years 1998 and 1999.  The IRS had challenged the deductibility of such interest expense deductions and has disallowed the deductions taken in tax years 1993 through 2001.

 

On May 2, 2005, Xcel Energy filed a motion for summary judgment in the district court litigation, which summary judgment motion asserted that Xcel Energy is entitled, as a matter of law, to deduct the policy loan interest.  On June 22, 2005, the government also filed a summary judgment motion arguing that Xcel Energy lacked an insurable interest in the lives of its employees, and therefore, the policies were allegedly void.  Both motions were heard in district court on Aug. 19, 2005.

 

On Oct. 12, 2005, because there were material issues of fact still in dispute, the district court denied Xcel Energy’s motion for summary judgment, which asserted that Xcel Energy is entitled, as a matter of law, to deduct the policy loan interest.  It also denied the government’s motion for summary judgment, which asserted that Xcel Energy had no insurable interest in the lives of its employees.  The district court did grant partial summary judgment to Xcel

 

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Energy affirming that it had an insurable interest in the lives of its employees.  The case is expected to proceed to trial, and the litigation could require several years to reach final resolution, if the trial court decision is appealed.

 

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This excerpt taken from the XEL 10-Q filed Jul 29, 2005.

Tax Matters

 

See a discussion of tax matters associated COLI policies at Note 3 to the consolidated financial statements.

 

This excerpt taken from the XEL 8-K filed Jul 27, 2005.
Tax Matters – As previously disclosed in Note 3 to Xcel Energy’s financial statements in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, in April 2004, Xcel Energy filed a lawsuit in U.S. District Court for the District of Minnesota against the Internal Revenue Service (IRS) to establish its entitlement to deduct, for tax years 1993 and 1994, policy loan interest related to corporate-owned life insurance (COLI) policies on some current and former employees of PSCo.  These COLI policies are owned and managed by PSR Investments, Inc. (PSRI), a wholly owned subsidiary of PSCo.  In December 2004, Xcel Energy filed suit in U.S. Tax Court in Washington, D.C., for tax years 1995 through 1997 and again in March 2005 for tax years 1998 and 1999.  The IRS had challenged the deductibility of such interest expense deductions and has disallowed the deductions taken in tax years 1993 through 2001.

 

Xcel Energy requested that the tax court consolidate and stay its petitions pending the decision in the district court litigation, and Xcel Energy brought a motion for summary judgment in the district court litigation.  Oral arguments on Xcel Energy’s summary judgment motion were expected to be presented to the district court on June 17, 2005.  On June 14, 2005, the IRS filed its own motion for summary judgment, arguing that PSCo was not entitled to the COLI deductions because PSCo had no insurable interest in its employees’ lives.  Xcel Energy denies that this claim has any merit.  A court hearing is scheduled for August 19, 2005 to hear both motions.

 

This excerpt taken from the XEL 10-K filed Mar 4, 2005.
Tax Matters — PSCo’s wholly owned subsidiary, PSRI, owns and manages permanent life insurance policies, known as COLI policies, on some of PSCo’s employees. At various times, borrowings have been made against the cash values of these COLI policies and deductions taken on the interest expense on these borrowings. The IRS has challenged the deductibility of such interest expense deductions and has disallowed the deductions taken in tax years 1993 through 1999.

 

After consultation with tax counsel, Xcel Energy contends that the IRS determination is not supported by tax law. Based upon this assessment, management believes that the tax deduction of interest expense on the COLI policy loans is in full compliance with the law. Accordingly, PSRI has not recorded any provision for income tax or related interest or penalties that may be imposed by the IRS and has continued to take deductions for interest expense related to policy loans on its income tax returns for subsequent years.

 

In April 2004, Xcel Energy filed a lawsuit in U.S. District Court for the District of Minnesota against the IRS to establish its entitlement to deduct policy loan interest for tax years 1993 and 1994.  In December 2004, Xcel Energy filed suit in U.S. Tax Court in Washington D.C. for tax years 1995 through 1997.  Xcel Energy expects to request that the tax court stay its petition pending the decision in the District Court litigation.  The litigation could require several years to reach final resolution. Although the ultimate resolution of this matter is uncertain, it could have a material adverse effect on Xcel Energy’s financial position and results of operations. Defense of Xcel Energy’s position may require significant cash outlays, which may or may not be recoverable in a court proceeding.

 

Should the IRS ultimately prevail on this issue, tax and interest payable through Dec. 31, 2004, would reduce earnings by an estimated $311 million.  In 2004, Xcel Energy received formal notification that the IRS will seek penalties. If penalties (plus associated interest) also are included, the total exposure through Dec. 31, 2004, is approximately $368 million.  Xcel Energy estimates its annual earnings for 2004 would be reduced by $36 million, after tax, which represents 8 cents per share, if COLI interest expense deductions were no longer available.

 

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