The federal Internal Revenue Service earlier this month sued Public Service Company of New Mexico (PNM), alleging the utility received $4.2 million in 1998 and 1999 income tax refunds and claimed even more based on accounting methods that the IRS now contends were bogus. The allegations were made in a lawsuit filed in a federal district court, noting that PNM supposedly made the claims on the advice of its accounting firm, Deloitte & Touche LLP.

While the IRS is claiming the utility wasn’t entitled to the refunds and that it has ignored requests to repay the monies, PNM’s Albuquerque-based spokesperson told local news media the company was served last Tuesday with the court filing and had not responded to it as of Thursday.

The refunds are tied to amended income tax filings that PNM made in 2002 on the advice of Deloitte, according to the IRS. The accounting firm convinced the utility to fund a study by Deloitte that reviewed back years’ income tax returns to help PNM claim belated tax refunds. PNM retained Deloitte as its auditing firm in 2002 after it dropped Arthur Andersen, which was decimated by its role in collapse of now bankrupt Enron Corp.

In September 2002, PNM filed an amended 1998 tax return based on Deloitte’s study, filing a reclassified $17.6 million in alleged research expenses that it depreciated in its original tax return, according to a report in the Albuquerque Journal. As a result, PNM requested a $3.75 million tax refund and a $915,000 tax research credit, the news report said. Subsequently, PNM also filed an amnded tax return for 1999, claiming combined refunds and credits of $462,000.

“We believe those tax returns were filed properly and accurately, and we stand by the integrity of our filings,” a PNM spokesperson was quoted as saying in the Journal report.

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