According to Law360, Exelon, the successor to Unicom Corp. and subsidiaries, had entered into a series of like-kind exchanges with unrelated tax-exempt public utilities after it sold its fossil fuel power plants in Northern Illinois for $4.8 billion in 1999. The exchanges involved sale and leaseback strategies by which the tax-exempt entities would receive a lump-sum payment to lease power plants to Exelon, and then Exelon would sublease the plant back to the public utility, according to the court’s opinion.The transactions were designed to allow Exelon to defer its income tax and obtain various deductions related to replacement properties, but Judge David Laro said that they were not true leases since they did not transfer the benefits and burdens of ownership to Exelon.
“The substance of the transactions is not consistent with their form,” Judge Laro said, denying Exelon certain deductions and holding it liable for accuracy-related penalties.
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