Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed, temporary and final regulations concerning deductions for contributions to trusts maintained for decommissioning nuclear power plants. The new rules, which affect taxpayers that own interests in nuclear power plants, reflect changes made to Code Sec. 468A by the Energy Policy Act of 2005 (P.L. 109-58). The text of the temporary regulations also serves as the text of the proposed regulations.
Under Code Sec. 468A, all decommissioning costs of both unregulated and regulated nuclear power plants can be funded by deductible contributions to a qualified nuclear decommissioning fund. A plant's pre-1984 decommissioning costs can be funded by increasing the annual deductible contributions over the remaining useful life of the plant. Further, a taxpayer can contribute, in a single year, all or any portion of the amount needed to fund pre-1984 costs that were not previously funded. Such a special transfer is not deductible in full in the year of the contribution, but is allowed ratably over the remaining useful life of the plant.
Useful Life
Under the temporary regulations, for plants that were regulated by a public utility commission (PUC) before 2006, the useful life of the plant begins on the first day of the tax year that includes the date the plan began commercial operations and ends on the last day of the tax year that includes the estimated date on which the plant will no longer be included in the taxpayer's rate base for ratemaking purposes. For other plants, any reasonable method may be used to determine the end of the estimated useful life. The temporary regulations eliminate the requirement that adjustments must be made to the estimated useful life to reflect changes in PUC assumptions regarding useful life.
Special Transfers
The temporary regulations provide rules for calculating the maximum special transfer amount. In addition, rules are provided concerning transfers of property other than cash and transfers of qualified nuclear decommissioning funds to related persons. Where a fund is transferred to a related person, the regulations provide that the transferee's ruling amounts will be adjusted to offset any inappropriate benefit provided by the resultant acceleration of deductions.
Schedules of Ruling Amounts
The temporary regulations provide that, for a plant that is subject to PUC regulation, the assumptions used by the PUC in determining decommissioning costs must be provided in the submission of the proposed schedule of ruling amounts. However, the PUC's assumptions need not be used in calculating the proposed schedule. The taxpayer bears the burden of establishing that the requested schedule is based on reasonable assumptions. A taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a PUC that formerly had jurisdiction over the plant or other industry standards as alternative means of demonstrating the proposed schedule of ruling amounts was calculated on a reasonable basis.
Effective Date
The temporary regulations apply beginning on December 31, 2007, with respect to tax years ending on or after that date. For the period from January 1, 2006, to December 31, 2007, taxpayers may use any reasonable method that is consistent with Code Sec. 468A to determine the schedule of ruling amounts or the schedule of deduction amounts.
Comments and Hearing
Written or electronic comments and requests for a public hearing on the proposed regulations must be received by March 31, 2008.
T.D. 9374, 2008FED ¶47,011
Proposed Regulations, NPRM REG-147290-05, 2008FED ¶49,784
Other References:
Code Sec. 468A
CCH Reference - 2007FED ¶21,931
CCH Reference - 2007FED ¶21,932
CCH Reference - 2007FED ¶21,933
CCH Reference - 2007FED ¶21,934
CCH Reference - 2007FED ¶21,935
CCH Reference - 2007FED ¶21,936
CCH Reference - 2007FED ¶21,937
CCH Reference - 2007FED ¶21,938
CCH Reference - 2007FED ¶21,939
CCH Reference - 2007FED ¶21,939C
Tax Research Consultant
CCH Reference - TRC ACCTNG: 12,208