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Enron Mail |
Wes, attached is the explanation for the Allegheny tax reserve. I do not k=
now why it was increased when it was. It was my understanding that the res= erve had been quantified by Matt Gockerman in my group and requested some t= ime ago and that Don and the commercial leads were aware of this. This may= be coming across as an increase when in reality it is simply properly book= ing currently that which was previously expected (said differently, without= the disposition we would have spread the tax over time and with the dispos= ition it became necessary to accelerate it as reflected in the tax reserve)= . As always, I have asked that only the absolutely necessary amount be res= erved. Please call me at ext. 30938 to further discuss this matter. Best = regards. Steve. -----Original Message----- From: =09Douglas, Stephen H. =20 Sent:=09Monday, April 30, 2001 8:32 PM To:=09Kitchen, Louise Subject:=09RE: Tax reserve on Allegheny Peakers The reserve referred to relates to Sales and Use tax ("Sales/Use tax") liab= ility related to the purchase and use by the Peaker project companies of va= rious equipment (i.e., turbines in Illinois and transformers in Tennessee a= nd Indiana) used to construct the Peaker facilities in Illinois, Indiana an= d Tennessee. Enron bears this tax obligation under the Sales Agreement pur= suant to which we sold the Peakers to Allegheny (effectively, this tax liab= ility is a "pre-acquisition date" tax liability that we, as the seller, are= responsible for). Typically, the equipment used to construct the Peakers = would be assessed Sales/Use tax when purchased by the Project company that = built the respective Peaker and that tax would effectively be passed on to = the buyer in a sale such as that to Allegheny. The EWS Tax Department stru= ctured the acquisition of the respective equipment to either avoid the Sale= s/Use tax or to spread the cost of such tax over time (for example, a sales= -leaseback strategy was employed in Illinois to spread the cost of the Sale= s/Use tax over many years as lease payments are made rather than pay it up = front). Ultimately, we benefitted from this since we did not use as much c= ash in constructing the Peakers and earned more from the disposition of the= Peakers than we otherwise would have since the counterparty would have (an= d we believe did in the specific case of Allegheny) modelled the cost of th= e Peakers as including the full current payment of such Sales/Use tax. Tha= t said, we have requested that a portion of the disposition proceeds from t= he sale of the Peakers be reserved until the applicable statute of limitati= ons related to the types of strategies that were employed to achieve the ab= ove described results expires since there is risk that our position could b= e challenged and, if challenged, there is a risk that we would not prevail.= Matt is out until May 8 (he is a recent father of a baby girl) but upon h= is return is available with me to discuss this matter with whomever you wou= ld like. Matt has worked closely with Don and others in the Generation Ass= et group and has assured me that the suggested reserve is a sound (not over= ly conservative nor liberal) position. Best regards. Steve. -----Original Message----- From: =09Kitchen, Louise =20 Sent:=09Monday, April 30, 2001 3:18 PM To:=09Matthew F Gockerman/HOU/ECT@ENRON Cc:=09Stephen H Douglas/HOU/ECT@ENRON; Don Miller/HOU/ECT@ENRON Subject:=09Tax reserve on Allegheny Peakers I notice that our gain has substantially decreased due to a tax reserve inc= rease of $5m. Why has this been added and why so recently? Regards Louise
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