Bayless v. Commissioner

MEMORANDUM OPINION

WILLIAMS, Judge: These consolidated cases are before this Court on the parties' cross-motions for summary judgment pursuant to Rule 121. ² There are no genuine issues of material fact and summary judgment is appropriate.

In these consolidated cases, the Commissioner determined the following deficiencies in petitioners' Federal income taxes:

*491 The sole issue for decision is whether petitioners are entitled to a residential energy credit for geothermal renewable energy source property installed in their homes in 1980 or 1981.

The facts of these cases have been fully stipulated pursuant to Rule 122 and are so found. At the time their petitions were filed, petitioners resided at the locations indicated below:

Each petitioner purchased and installed a Thermal Energy Transfer Corporation (TETCO) "Geothermal Ground-Water Heat Extractor" or other similar equipment in his principal residence, located in the United States, during the taxable year at issue in each case. The cost of the equipment and its installation was reported*492 by each petitioner as geothermal renewable energy source costs on his tax return.

Each petitioner was the original user of the equipment and installed the equipment for the principal purpose of heating and/or cooling his dwelling. The equipment was designed to extract heat from, or dispel heat to, well water. The equipment could reasonably be expected to remain in operation for at least five years.

The temperature of the well water used by the equipment varied between 10 and 21.1 degrees Celsius, depending on the geographic location of the well. The temperature for each well remained relatively constant throughout the year. In general, section 44C ³ allows an income tax credit of 40% of the amount of renewable energy source expenditures made by an individual during the taxable year. The only issue in these cases is the validity of the temperature limitation of section 1.44C-2(h), Income Tax Regs. This section of respondent's regulations defines "geothermal deposit" for purposes of section 44C(c)(5)(A)(i) as a geothermal reservoir having a temperature exceeding 50 degrees Celsius as measured at the wellhead. Section 1.44C-2(h), Income Tax Regs. Petitioners' equipment would qualify*493 for the section 44C credit but for this temperature limitation of the regulations.

*494 The validity of this regulation was recently considered and upheld by this Court in Peach v. Commissioner,84 T.C. 1312 (1985), on facts indistinguishable from those in the present cases. ⁴ The Court in Peach held that the requirement of a minimum temperature for geothermal deposits of 50 degrees Celsius was neither unreasonable nor arbitrary. 84 T.C. at 1317.

Petitioners concede that their cases are controlled by Peach but ask us to overrule that case because the Court in Peach did not have before it certain scientific evidence presented in these cases in an affidavit of Dr. John M. Sharp, Professor and Associate Chairman of the Department of Geological Sciences at the University of Texas. In Dr. Sharp's opinion, scientifically there is no natural lower temperature boundary for geothermal deposits. Further, Dr. Sharp states that the heat content of all groundwater below a given depth is derived almost entirely from the earth's internal energy and is, therefore, by definition stored geothermal energy.*495 On this basis petitioners argue that the lower limit for geothermal deposits of 50 degrees Celsius imposed under respondent's regulations is contrary to sound scientific opinion and arbitrary.

We do not doubt the accuracy of Dr. Sharp's scientific observations, but they are theoretical. Respondent's regulations, by contrast, are designed not to implement the theoretically correct answer but to apply the statute to effect Congress' intent in a reasonable manner. The legislative history of the provision fails to support petitioners' conclusion that respondents' regulations are unreasonable and arbitrary. The temperature limitation appears to be designed to eliminate equipment that uses standard technologies from qualifying for the credit. S. Rept. No. 95-529, 40 (1977), 1978-3 C.B. (Vol. 2) at 232. Petitioners' equipment, which is a type of heat pump, is just such equipment.

We decline to overrule Peach, and therefore we hold that petitioners' equipment does not qualify for the residential energy credit provided by section 44C since the temperature of each geothermal deposit utilized by petitioners' equipment is less than 50 degrees Celsius. ⁵

*496 Petitioners aruge in the alternative that their equipment qualifies under section 44C as solar energy property. Respondent's regulations, however, specifically exclude property which uses heated underground water as an energy source from the definition of solar energy property. Section 1.44C-2(f)(1), Income Tax Regs. As Dr. Sharp stated in his affidavit, "The only way in which groundwater heat content could be said to derive from solar energy is where there is such extremely rapid downwards flow of ground water that there the thermal gradient is zero." Petitioners' claim that their equipment qualifies as solar energy property is without merit.

To reflect certain concessions,

Decision will be entered under Rule 155 in docket No. 35241-84 and docket No. 20410-84.

Decision will be entered for the respondent in all other dockets.