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Enron Mail |
I have forwarded the attached to our tax guys to make sure they are both in agreement and have nothing to add. Please let me know if you have any questions or comments. -----Original Message----- From: Markel, Gregory A. [mailto:GMarkel@brobeck.com] Sent: Saturday, July 21, 2001 6:06 AM To: Brownfeld, Gail; 'george.mcclellan.@enron.com' Cc: Johnson, Christopher P. Subject: FW: Sempra tax rate Greg Markel Brobeck Phleger & Harrison 1633 Broadway New York, New York 10019 Phone: 212 237 2592 Fax 212 586 7878 gmarkel@brobeck.com -----Original Message----- From: Martin, Keith [mailto:kmartin@chadbourne.com] Sent: Friday, July 20, 2001 2:16 PM To: 'gmarkel@brobeck.com'; 'cpjohnson@brobeck.com' Subject: Sempra tax rate Greg and Chris, As best we can tell, Sempra is not in a position currently to use section 29 tax credits. This is based on the following bits of evidence. 1. A company cannot claim section 29 tax credits in years when it pays no taxes or pays them under the alternative minimum tax (rather than the regular corporate income tax). 2. Section 29 credits cannot be carried forward. A company must use them or lose them. The one exception is in a year when the company is on the alternative minimum tax, the credit turns into a so-called AMT credit and can be carried forward. It must be used in that case in the first year the company comes off the AMT. 3. It appears from Sempra's 10-K that it was in a net operating loss position in 2000. The company shows "current" federal income taxes of -$8 million. It also shows "deferred" federal income taxes last year of $207 million. According to Morris Meltzer, tax director at PG&E's unregulated affiliate, this means that the company had more book income than taxable income last year. The deferred tax liability reflects the taxes the company expects to have to pay in the future as a result of this disparity. 4. Sempra's 10-Q for the first quarter 2001 shows positive current tax liability of $74 million. However, Jack Casey, vice chairman of Meridian Investments, told me that Sempra expects to be in a net operating loss position for the year. Meridian has been hired by Sempra to sell Sempra's interest in the Carbonronics syncoal facilities. I asked Casey why Sempra wants to sell -- is it because it can't use the tax credits or because it has soured on investing in syncoal projects given all the bad publicity? Casey said it cannot use the tax credits. In other news, the IRS has not budged on its plan to limit the capacity of plants to which it issues rulings to absurdly low numbers. The industry has complained to the Treasury, and there have been discussions at senior levels of Treasury and the IRS, but no reports back on where these internal talks are headed. Detroit Edison has a meeting with the IRS on its ruling request next Tuesday. The IRS has said it will limit capacity at the DTE facility to 198,000 tons a year. I assume you saw the article last Thursday in the Wall Street Journal about syncoal projects. It was on the front page. As far as I can tell, all proposed sales of syncoal plants in the market are on hold. This is a consequence of the Wall Street Journal article and the impasse with the IRS over capacity. The industry is starting to think it may have won a political battle earlier this year at Treasury, but lost the war. The IRS bureaucrats will have the final say. Joe Makurath, the IRS rulings group chief, said he is getting a number of FOIA requests for documents about projects on which the IRS has already ruled. He said he intends to be liberal in releasing information. There are rumors that the Wall Street Journal may be one of the organizations seeking information and may be at work on a followup article. The IRS launched an audit of four projects in West Virginia and Virginia that many people consider to be on the best end of the spectrum. The projects already have rulings that they qualify for credits. The IRS appears to be gathering evidence to argue that they did not get into service in time to qualify for tax credits or else that the projects failed to comply with the rulings. It is sending out big guns from Chicago, and one agent told the taxpayer that the IRS national office said "don't worry about expense on this one." I will try over the weekend to give you my comments on the deposition transcripts. Sorry for the delay. If you don't find them when you come in on Monday, they will be first on my to-do list that morning. Keith ************************************************************ This e-mail, and any attachments thereto, is intended only for use by the addressee(s) named herein and may contain legally privileged and/or confidential information. 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