Tax Legal Services · Primary-source case analysis

Indianapolis Power: Refundable Customer Deposits Were Not Income on Receipt

By Aneeta Mishra and Timothy Chan

Published September 2, 2026

Commissioner v. Indianapolis Power & Light Co. addressed deposits required from some utility customers as security for future payment. The utility received and used the funds but remained obligated to refund them when specified credit conditions were met or service ended.

Receipt alone did not establish income

The tax inquiry asked whether the utility obtained such control over the money that it realized an accession to wealth. Physical possession and the ability to use the funds were relevant but not sufficient by themselves.

Customers controlled the condition of repayment

A customer could secure a refund by establishing satisfactory payment history or by ending service. The utility could apply the deposit to bills only in defined circumstances, so its right to retain the money depended largely on future events controlled by the customer.

The deposits differed from advance payments

An advance payment ordinarily gives the seller an unconditional right to keep the money so long as it performs. These deposits primarily secured performance and carried a continuing repayment obligation, making the utility's dominion materially incomplete.

The Court affirmed exclusion at receipt

The deposits were not income when collected. If later applied to an unpaid account or otherwise freed from the refund obligation, the tax consequences would arise under the facts and accounting rules applicable at that later time.

Key takeaways

• Identify who controls whether the recipient may keep the payment.
• Document every refund condition and application right.
• Separate security deposits from nonrefundable advance payments.
• Track later events that convert a repayment obligation into retained revenue.