Internal Revenue Bulletin:  2006-11 

March 13, 2006 

Notice 2006-24

Qualifying Advanced Coal Project Program


SECTION 1. PURPOSE

This notice establishes the qualifying advanced coal project program under § 48A(d) of the Internal Revenue Code. The purpose of the program is the deployment of advanced coal-based generation technologies.

SECTION 2. BACKGROUND

.01 Section 46 provides that the amount of the investment credit for any taxable year is the sum of the credits listed in § 46. Section 1307(a) of the Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594 (August 8, 2005) (the “Act”), amended § 46 to add two new credits to that list: the qualifying advanced coal project credit and the qualifying gasification project credit.

.02 The qualifying advanced coal project credit is provided under § 48A, as added by § 1307(b) of the Act. Section 48A(a) provides that the qualifying advanced coal project credit for a taxable year is an amount equal to (1) 20 percent of the qualified investment (as defined in § 48A(b)) for that taxable year in certified qualifying advanced coal projects (as defined in § 48A(c)(1) and (e)) using an integrated gasification combined cycle (IGCC) (as defined in § 48A(c)(7)), and (2) 15 percent of the qualified investment for that taxable year in other certified qualifying advanced coal projects.

.03 Section 48A(d)(3)(A) provides that the aggregate credits allowed under § 48A(a) may not exceed $1.3 billion. Section 48A(d)(3)(B) provides that (i) $800 million of credits are to be allocated to IGCC projects, and (ii) $500 million of credits are to be allocated to projects that use other advanced coal-based generation technologies (as defined in § 48A(c)(2) and (f)).

.04 Section 48A(e)(3)(A) provides that the credits for IGCC projects must be allocated in accordance with the procedures set forth in § 48A(d), and in relatively equal amounts to (i) projects using bituminous coal as a primary feedstock, (ii) projects using subbituminous coal as a primary feedstock, and (iii) projects using lignite as a primary feedstock. Further, § 48A(e)(3)(B) provides that IGCC projects that include (i) greenhouse gas capture capability (as defined in § 48A(c)(5)), (ii) increased by-product utilization, and (iii) other benefits must be given high priority in the allocation of credits for IGCC projects.

.05 The at-risk rules in § 49 and the recapture and other special rules in § 50 apply to the qualifying advanced coal project credit. Further, the qualifying advanced coal project credit generally is allowed in the taxable year in which the eligible property (as defined in § 48A(c)(3)) is placed in service by the taxpayer. Pursuant to § 48A(D)(2)(E), a taxpayer that receives a certification under § 48A(d)(2)(D) has 5 years from the date of issuance of the certification to place the qualifying advanced coal project in service.

SECTION 3. QUALIFYING ADVANCED COAL PROJECT PROGRAM

Section 48A(d)(1) provides that the Secretary, in consultation with the Secretary of Energy, shall establish a qualifying advanced coal project program for the deployment of advanced coal-based generation technologies. The Treasury Department and the Internal Revenue Service are establishing this program under the rules set forth in sections 4 through 9 of this notice.

SECTION 4. ESTABLISHMENT OF QUALIFYING ADVANCED COAL PROJECT PROGRAM

.01 In General. The Service will consider a project under the qualifying advanced coal project program only if the U.S. Department of Energy (“DOE”) provides a certification of feasibility and consistency with energy policy goals (“DOE certification”) for the project. Accordingly, a taxpayer must submit, for each qualifying advanced coal project: (1) an application for certification by the DOE (“application for DOE certification”), and (2) an application for certification under § 48A(d)(2) by the Service (“application for § 48A certification”). Both applications may be submitted only during the 3-year period beginning on February 21, 2006. Certifications will be issued and credits will be allocated to projects in annual allocation rounds. The initial allocation round will be conducted in 2006. If necessary, additional allocation rounds will be conducted in 2007 and 2008.

.02 Program Specifications.

(1) The Service will determine the amount of the qualifying advanced coal project credits allocated to a qualifying advanced coal project at the time the Service accepts the application for § 48A certification for that project in accordance with section 4.02(10) of this notice (see section 5 of this notice for the requirements applicable to the application for DOE certification and the application for § 48A certification).

(2) The qualifying advanced coal project credits of $1.3 billion and the applications for certification will be separated into the following four pools:

(a) Projects using an advanced coal-based generation technology other than IGCC. The aggregate amount of qualifying advanced coal project credit for this pool is $500 million. The maximum amount of credits that will be allocated to a project is $125 million.

(b) IGCC projects using bituminous coal as a primary feedstock. The aggregate amount of qualifying advanced coal project credit for this pool is $267 million. The maximum amount of credits that will be allocated to a project is $133.5 million.

(c) IGCC projects using subbituminous coal as a primary feedstock. The aggregate amount of qualifying advanced coal project credit for this pool is $267 million. The maximum amount of credits that will be allocated to a project is $133.5 million.

(d) IGCC projects using lignite as a primary feedstock. The aggregate amount of qualifying advanced coal project credit for this pool is $266 million. The maximum amount of credits that will be allocated to a project is $133 million.

(3) For projects using an advanced coal-based generation technology other than IGCC, the aggregate credit of $500 million for this pool as described in section 4.02(2)(a) of this notice will be allocated in the initial round of allocations to projects providing the highest ratio of total nameplate generating capacity to requested allocation of credits.

(4) For each IGCC pool described in section 4.02(2)(b), (c), and (d) of this notice, the aggregate credit for that pool will be allocated as follows in the initial round of allocations:

(a) The aggregate credit will be allocated first to the projects entitled to priority under § 48A(e)(3)(B) for greenhouse gas capture capability or increased by-product utilization.

(b) If the requested allocation of credits for these priority projects exceeds the aggregate credit for the pool, the credit for that pool will be allocated to the priority projects providing the highest ratio of total nameplate generating capacity to requested allocation of credits.

(c) If the requested allocation of credits for the priority projects in a pool does not exceed the aggregate credit for the pool, the remaining amount of the credit will be allocated to the nonpriority projects providing the highest ratio of total nameplate generating capacity to requested allocation of credits.

(5) If the aggregate credit for a pool is not fully allocated in the initial round of allocations in 2006, similar allocation rounds will be conducted in 2007 and 2008 until the aggregate credit is fully allocated. Generally, the results of each year will be announced.

(6) If the same project would otherwise be allocated credits under both the qualifying advanced coal project program under this notice and the qualifying gasification project program under Notice 2006-25, 2006-11 I.R.B. , the following rules apply:

(a) If the project is allocated the full amount of the qualifying advanced coal project credit requested by the taxpayer, no qualifying gasification project credit will be allocated to the project;

(b) If the project is allocated the full amount of the qualifying gasification project credit requested by the taxpayer, no qualifying advanced coal project credit will be allocated to the project;

(c) If the project is allocated less than the full amount of the qualifying advanced coal project credit requested by the taxpayer, the qualifying gasification project credit may be allocated to the project with respect to the qualified investment under § 48B for which a qualifying advanced coal project credit is not allowed under § 48A; and

(d) If the project is allocated less than the full amount of the qualifying gasification project credit requested by the taxpayer, the qualifying advanced coal project credit may be allocated to the project with respect to the qualified investment under § 48A for which a qualifying gasification project credit is not allowed under § 48B.

(7) For each allocation round there will be an annual application period during which a taxpayer may file its application for § 48A certification. The Service will consider a project in an allocation round only if the application for § 48A certification for the project is submitted during the application period for that round and the DOE provides the DOE certification for the project before the end of the application period.

(8) For the initial allocation round conducted in 2006, the application period begins on February 21, 2006, and ends on October 2, 2006. Any completed application for § 48A certification received by the Service before October 3, 2006, will be deemed to be submitted by the taxpayer on October 2, 2006. For 2007, the application period begins on October 3, 2006, and ends on October 1, 2007, and any completed application for § 48A certification received by the Service after October 2, 2006, and before October 2, 2007, will be deemed to be submitted by the taxpayer on October 1, 2007. For 2008, the application period begins on October 2, 2007, and ends on October 1, 2008, and any completed application for § 48A certification received by the Service after October 1, 2007, and before October 2, 2008, will be deemed to be submitted by the taxpayer on October 1, 2008. For purposes of this notice, an application that is submitted by U.S. mail will be treated as received by the Service on the date of the postmark and an application submitted by a private delivery service will be treated as received by the Service on the date recorded or the date marked in accordance with § 7502(f)(2)(C).

(9) See section 5.02 of this notice and Appendix B to this notice for the information to be submitted to the DOE in an application for DOE certification. Appendix B to this notice also provides the instructions and address for filing the application for DOE certification. The DOE will determine the feasibility of the project and its consistency with energy policy goals and, if the project is determined to be feasible and consistent with energy policy goals, will provide a DOE certification for the project to the Service. If an application for DOE certification is postmarked on or before June 30 of a calendar year, the DOE will determine the feasibility of the project and its consistency with energy policy goals and (for projects determined to be feasible and consistent) provide the DOE certification by October 1 of that calendar year.

(10) By November 30 of the calendar year in which an application for § 48A certification is deemed to be submitted (as determined under section 4.02(8) of this notice), the Service will accept or reject the taxpayer’s application for § 48A certification and will notify the taxpayer, by letter, of its decision.

(11) If the taxpayer’s application for § 48A certification is accepted, the acceptance letter will state the amount of the credit allocated to the project. If a credit is allocated to a taxpayer’s project, the taxpayer will be required to execute a closing agreement in the form set forth in Appendix A to this notice. By January 31 of the following year, the taxpayer must execute and return the closing agreement to the Service at the appropriate address listed in section 5.04 of this notice or listed in later guidance published in the Internal Revenue Bulletin. The Service will execute and return the closing agreement to the taxpayer by March 31 of such following year. The executed closing agreement applies only to the accepted taxpayer. Accordingly, any successor in interest must execute a new closing agreement with the Service. If the successor in interest does not execute a new closing agreement, the following rules apply:

(a) In the case of an interest acquired at or before the time the qualifying advanced coal project is placed in service, any credit allocated to the project will be fully forfeited (and rules similar to the recapture rules of § 50(a) apply with respect to qualified progress expenditures); and

(b) In the case of an interest acquired after the qualifying advanced coal project is placed in service, the project ceases to be investment credit property and the recapture rules of § 50(a) (and similar rules with respect to qualified progress expenditures) apply.

SECTION 5. APPLICATIONS FOR CERTIFICATIONS

.01 In General. An application for § 48A certification and a separate application for DOE certification must be submitted for each qualifying advanced coal project. If an application for DOE certification does not include all of the information required by section 5.02 of this notice and meet the requirements in sections 7.01 and 7.02 of this notice, the DOE may decline to accept the application. If an application for § 48A certification does not include all of the information listed in section 5.03 of this notice and meet the requirements in sections 7.01 and 7.02 of this notice, the application will not be accepted by the Service.

.02 Information Required in the Application for DOE Certification. An application for DOE certification must include all of the information requested in Appendix B to this notice and all of the following:

(1) The name, address, and taxpayer identification number of the taxpayer;

(2) The name and telephone number of a contact person;

(3) The name and address (or other unique identifying designation) of the qualifying advanced coal project;

(4) A statement specifying whether the project is an IGCC project or a qualifying advanced coal project that uses another advanced coal-based technology;

(5) In the case of an IGCC project, a statement specifying the type of coal (bituminous coal, subbituminous coal, or lignite) that will be the primary feedstock. An application for DOE certification with respect to an IGCC project will not be considered unless one of these types of coal is the primary feedstock. For purposes of § 48A(e)(3)(A), a type of coal is the primary feedstock only if at all times more than 50 percent of the cumulative total fuel input (coal and any other fuel input) for the project will consist of that type of coal;

(6) The estimated total cost of the project and the estimated total qualified investment in the eligible property that will be part of the project;

(7) The amount of the qualifying advanced coal project credit requested for the project. The amount requested must not exceed the maximum amount provided in section 4.02(2) of this notice;

(8) If the taxpayer is or will be requesting an amount of the qualifying gasification project credit under § 48B for the same project, a statement specifying the credit the taxpayer prefers to receive;

(9) A statement specifying whether the project is a new electric generation unit (as defined in § 48A(c)(6)), a retrofit of an existing electric generation unit, or a repower of an existing electric generation unit; and

(10) The exact total nameplate generating capacity of the project.

.03 Information Required in the Application for § 48A Certification. Pursuant to § 48A(d)(2)(B), an application for § 48A certification must include all of the following:

(1) The name, address, and taxpayer identification number of the taxpayer;

(2) The name and telephone number of a contact person. If necessary, attach any required power of attorney, preferably on Form 2848, Power of Attorney and Declaration of Representative; and

(3) A paper copy of the completed application for DOE certification submitted with respect to the project in accordance with section 5.02 of this notice.

.04 Instructions and Address for Filing § 48A Application. Applications for § 48A certification should be marked: SECTION 48A APPLICATION FOR CERTIFICATION. There is no user fee for these applications.

(1) Applications submitted by U.S. mail must be sent to:

Internal Revenue Service
Attn: CC:PSI:6, Room 5313
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Applications submitted by a private delivery service must be sent to:

Internal Revenue Service
Attn: CC:PSI:6, Room 5313
1111 Constitution Ave., N.W.
Washington, DC 20224

(2) Applications may also be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to:

Courier’s Desk
Internal Revenue Service
Attn: CC:PSI:6, Room 5313
1111 Constitution Avenue, N.W.
Washington, DC 20224

SECTION 6. ISSUANCE OF CERTIFICATION

.01 In General. Section 48A(d)(2)(D) provides that a taxpayer shall have 2 years from the date of acceptance of the § 48A application during which to provide evidence that the criteria set forth in § 48A(e)(2) have been met. Pursuant to § 48A(e)(2), a project shall be eligible for certification only if (A) the taxpayer has received all federal and state environmental authorizations or reviews necessary to commence construction of the project, and (B) the taxpayer, except in the case of a retrofit or repower of an existing generation unit, has purchased or entered into a binding contract for the purchase of the main steam turbine or turbines for the project, except that this contract may be contingent upon receipt of a certification under § 48A(d)(2). Section 48A(d)(2)(E) provides that a taxpayer that receives a certification has 5 years from the date of issuance of the certification to place the project in service and that the certification is void if the project is not placed in service by the end of that five-year period.

.02 Requirements for Certification. Within 2 years from the date that the Service accepts the taxpayer’s application for § 48A certification under section 4.02(10) of this notice, the taxpayer must submit to the Service documentation establishing that the requirements of § 48A(e)(2) are satisfied. See also sections 7.01 and 7.02 of this notice for other requirements that must be satisfied. The taxpayer should mark the package “SECTION 48A CERTIFICATION REQUIREMENTS” and send it to the appropriate address listed in section 5.04 of this notice or listed in later guidance published in the Internal Revenue Bulletin.

.03 Service’s Action on Certification. After receiving the material in section 6.02 of this notice, the Service will decide whether or not to certify the project and will notify the taxpayer, by letter, of that decision. If the Service certifies the project, the date of this letter is the date of issuance of the certification.

SECTION 7. OTHER REQUIREMENTS

.01 Signature. Each submission under sections 5 and 6 of this notice must be signed and dated by the taxpayer. A stamped signature or faxed signature is not permitted.

.02 Penalties of Perjury Statement.

(1) Each submission under sections 5 and 6 of this notice must be accompanied by the following declaration: “Under penalties of perjury, I declare that I have examined this submission, including accompanying documents, and, to the best of my knowledge and belief, all of the facts contained herein are true, correct, and complete.”

(2) The declaration must be signed and dated by the taxpayer. The person signing for the taxpayer must have personal knowledge of the facts. A stamped signature or faxed signature is not permitted.

.03 Effect of an Acceptance, Allocation, or Certification. An acceptance, allocation, or certification by the Service under this notice is not a determination that a project qualifies for the qualifying advanced coal project credit under § 48A. The Service may, upon examination (and after any appropriate consultation with DOE), determine that the project does not qualify for this credit.

.04 No Right to a Conference or Appeal. A taxpayer does not have a right to a conference relating to any matters under this notice. Further, a taxpayer does not have a right to appeal the decisions made under this notice (including the acceptance or rejection of the application for DOE or § 48A certification, the amount of credit allocated to the project, or whether or not to certify the project) to an Associate Chief Counsel or any other official of the Service.

SECTION 8. REVIEW AND REDISTRIBUTION

.01 In General. Section 48A(d)(4)(A) provides that the credits allocated under § 48A must be reviewed not later than August 8, 2011. Pursuant to § 48A(d)(4)(B), credits available under § 48A(d)(3)(B)(i) and (ii) may be reallocated if (i) there is an insufficient quantity of qualifying applications for certification pending at the time of the review; or (ii) any certification made pursuant to § 48A(d)(2) has been revoked pursuant to § 48A(d)(2)(D). If credits under § 48A(d)(3)(B)(i) and (ii) are available for reallocation, § 48A(d)(4)(C) authorizes the conduct of an additional program for applications for certification.

.02 Review and Redistribution of Credits.

(1) In general. If, after the allocation round in 2008, the entire credit for a pool is not fully subscribed (i.e., the aggregate credit for the pool has not been fully allocated), the remaining credits from that pool will be reallocated to pools that have been fully subscribed. Credits from pools not fully subscribed will be reallocated to fully subscribed pools in proportion to the aggregate amounts of credit specified for the fully subscribed pools in section 4.02(2) of this notice. Future guidance will prescribe the procedures applicable to applications for certification with respect to the reallocated credits.

(2) Reduction or forfeiture of allocated credits. Under the closing agreement set forth in Appendix A to this notice, the qualifying advanced coal project credits allocated under section 4 of this notice will be reduced or forfeited in certain situations. A taxpayer must notify the Service of the amount of any reduction or forfeiture required under the closing agreement. This notification must be sent to the appropriate address listed in section 5.04 of this notice or listed in later guidance published in the Internal Revenue Bulletin.

The amount of any reduction or forfeiture of the allocated credits will be returned to the appropriate allocation pool and included in the aggregate credit remaining to be allocated in the allocation round following the reduction or forfeiture. If the reduction or forfeiture occurs after the allocation round in 2008, future guidance will prescribe procedures applicable to applications for certification with respect to the returned credits.

SECTION 9. QUALIFIED PROGRESS EXPENDITURES

.01 Section 48A(b)(3) provides that rules similar to the rules of § 46(c)(4) and (d) (as in effect on the day before the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of § 48A. Former §§ 46(c)(4) and 46(d) provided the rules for claiming the investment credit on qualified progress expenditures (as defined in former § 46(d)(3)) made by a taxpayer during the taxable year for the construction of progress expenditure property (as defined in former § 46(d)(2)).

.02 In the case of self-constructed property (as defined in former § 46(d)(5)(A)), former § 46(d)(3)(A) defined qualified progress expenditures to mean the amount that is properly chargeable (during the taxable year) to capital account with respect to that property. With respect to a qualifying advanced coal project that is self-constructed property, amounts paid or incurred are chargeable to capital account at the time and to the extent they are properly includible in computing basis under the taxpayer’s method of accounting (for example, after applying the requirements of § 461, including the economic performance requirement of § 461(h)).

.03 To claim the qualifying advanced coal project credit on the qualified progress expenditures paid or incurred by a taxpayer during the taxable year for construction of a qualifying advanced coal project, the taxpayer must make an election under the rules set forth in § 1.46-5(o) of the Income Tax Regulations. A taxpayer may not make the qualified progress expenditures election for a qualifying advanced coal project until the taxpayer has received an acceptance letter for the project under section 4.02(10) of this notice.

.04 If a taxpayer makes the qualified progress expenditures election pursuant to section 9.03 of this notice, rules similar to the recapture rules in § 50(a)(2)(A)-(D) apply. In addition to the cessation events listed in § 50(a)(2)(A), examples of other events that will cause the project to cease being a qualifying advanced coal project are:

(1) Failure to satisfy any of the certification requirements in § 48A(e)(2) within 2 years from the date that the Service accepted the taxpayer’s application for § 48A certification for the project under section 4.02(10) of this notice;

(2) Failure to receive a certification for the project in accordance with section 6.03 of this notice;

(3) Failure to place the project in service within 5 years from the date of issuance of the certification under section 6.03 of this notice; or

(4) In the case of an IGCC project that was entitled to priority under § 48A(e)(3)(B), failure to provide the priority benefit on the date the project is placed in service.

SECTION 10. EFFECTIVE DATE

This notice is effective February 21, 2006.

SECTION 11. PAPERWORK REDUCTION ACT

The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-2003.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collections of information in this notice are in sections 4, 5, 6, 7, 8, and Appendix B of this notice. This information is required to obtain an allocation of qualifying advanced coal project credits. This information will be used by the Service to verify that the taxpayer is eligible for the qualifying advanced coal project credits. The collection of information is required to obtain a benefit. The likely respondents are business or other for-profit institutions.

The estimated total annual reporting burden is 4,950 hours.

The estimated annual burden per respondent varies from 70 to 150 hours, depending on individual circumstances, with an estimated average of 110 hours. The estimated number of respondents is 45.

The estimated annual frequency of responses is on occasion.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

SECTION 12. DRAFTING INFORMATION

The principal author of this notice is Douglas H. Kim of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Mr. Kim at (202) 622-3110 (not a toll-free call).


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