IRS Clarifies Utilities’ ‘Normalization’ Accounting Requirements

A new IRS revenue procedure clarifies for regulated utility companies an accounting method for determining the tax treatment of depreciable public utility assets.

• In Rev. Proc. 2020-39, the agency clarifies calculation methods for accelerated cost recovery affected by the 2017 tax law’s corporate tax rate cut to 21%, for utilities using normalization accounting.
• Normalization, under tax code Section 168, allows companies to take the tax benefits of accelerated depreciation and pass them to customers in regulated rates over time.