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needed to classify the initial payments from customers as advance payments. The court ruled this way
because they said the primary purpose of the deposit was to secure the future payment for goods or
services to be provided by the deposit recipient.
However, in a later case of Commissioner v. Indianapolis Power & Light Co [90-1 USTC 50,007],
U.S. Supreme Court, (Jan. 9, 1990), the Supreme Court did not apply the same logic that the 11 th
Circuit used in the City Gas Co. case. The Supreme Court examined the facts and circumstances
surrounding the case to determine whether or not customer deposit was an advance payment or
security deposit. In this case, if the customers paid their bill for either 9 consecutive months or 10 out
of 12 months, they would automatically receive their refund, plus interest. For Indianapolis Power &
Light (IPL), the customers required to make these prepayments were only customers with
questionable credit ratings. Additionally, the customers were not required to purchase a specified
quantity of electricity, or even any electricity at all. The Supreme Court affirmed the judgement of the
Court of Appeals and ruled in favor of IPL. They recognized that because IPL did not have the
necessary complete dominion over the deposits at the time they were made, then the deposits acted
more like a loan than an advance payment. IPLs right to retain the money was outside of its own
control, and the refunds were guaranteed upon the payment contingencies. Therefore, the customer
deposits did not qualify as taxable income at the time they were made.
Having two contradicting case outcomes, the 11th Circuits rule in the City Gas case and the 7th
Circuits rule in the Indianapolis Power & Light Case, the Supreme Court granted certiorari to IPL,
as noted above. However, CenterPoint will not be as lucky as IPL, and CenterPoint will need to
recognize income on these deposits. This CenterPoint case has several different essential elements
that were not in the IPL case. Whereas IPL only required these prepayments from its customers with
poor credit, CenterPoint is requiring these deposits from every one of its new customers.
Additionally, while IPLs customer deposits did not require its customers to purchase any specified
amount of electricity, CenterPoints deposits require its customers to purchase a minimum of $100 of
electricity. The final crucial reason CenterPoint must classify these deposits as advance payments is
because it has complete dominion over them at the time they are made. IPL did not have complete
dominion at the time the payments were made, so it did not have to report them as taxable income.
CenterPoint gets to keep the $100 deposit, no matter what, so they will need to classify them as
advance payments and pay taxes on them.