The Office of Economics is in charge of overseeing accounting and reporting rules and requirements for regulated railroads and maintains an audit program to ensure compliance. In carrying out those functions, it often corresponds with rail carriers outside of the context of a formal docket. The Board posts this correspondence in the interest of transparency.
The Tax Cuts and Jobs Act, enacted December 22, 2017, reduced the federal corporate income tax rate from a maximum of 35% (see 26 U.S.C. § 11(b) (2012)) to a flat 21%, effective January 1, 2018. Because the lowering of the tax rate resulted in substantial increases in non-cash income, all of the Class I rail carriers wrote to the Office of Economics in early 2018, requesting that they be permitted to make a one-time adjustment in their annual accounting reports by treating their deferred income tax liabilities (which resulted in the increased income) as an “extraordinary item.” In response letters sent on March 20, 2018, the Board’s Acting Director of the Office of Economics denied all of the requests, finding that none of the carriers had shown that the use of the “extraordinary item” classification was proper. The carriers’ requests and the responses from the Acting Director are below.
It should be noted that the Board ultimately permitted one-time adjustments in formal proceedings involving the annual cost of capital calculation; annual revenue adequacy calculation; and annual Uniform Rail Costing System calculations. See Railroad Revenue Adequacy—2017 Determination, Docket No. EP 552 (Sub-No. 22) et al. (Dec. 6, 2018)