Internal Revenue Bulletin:  2006-11 

March 13, 2006 

Notice 2006-25

Qualifying Gasification Project Program


SECTION 1. PURPOSE

This notice establishes the qualifying gasification project program under § 48B(d) of the Internal Revenue Code. The purpose of this program is to consider and award certifications for qualified investment eligible for credits under § 48B to qualifying gasification project sponsors.

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 gasification project credit is provided under § 48B, as added by § 1307(b) of the Act. Section 48B(a) provides that the qualifying gasification project credit for a taxable year is an amount equal to 20 percent of the qualified investment (as defined in § 48B(b)) for that taxable year in qualifying gasification projects. Pursuant to § 48B(d)(1), the aggregate amount of credits allocated to all qualifying gasification projects may not exceed $350 million.

.03 The term “qualifying gasification project” is defined in § 48B(c)(1) as meaning any project that (A) employs gasification technology, (B) will be carried out by an eligible entity (as defined in § 48B(c)(7)), and (C) includes a qualified investment of which an amount not to exceed $650 million is certified under the qualifying gasification program as eligible for credit under § 48B. Pursuant to § 48B(c)(2), gasification technology is any process that converts a solid or liquid product from coal (as defined in § 48B(c)(6)), petroleum residue (as defined in § 48B(c)(8)), biomass (as defined in § 48B(c)(4)), or other materials that are recovered for their energy or feedstock value into a synthesis gas composed primarily of carbon monoxide and hydrogen for direct use or subsequent chemical or physical conversion.

.04 The qualifying gasification project credit generally is allowed in the taxable year in which the eligible property (as defined in § 48B(c)(3)) is placed in service by the taxpayer. Further, the at-risk rules in § 49 and the recapture and other special rules in § 50 apply to the qualifying gasification project credit.

SECTION 3. QUALIFYING GASIFICATION PROJECT PROGRAM

Section 48B(d)(1) provides that the Secretary, in consultation with the Secretary of Energy, shall establish a qualifying gasification project program to consider and award certifications for qualified investment eligible for credits under § 48B to qualifying gasification project sponsors. The Treasury Department and the Internal Revenue Service are establishing the qualifying gasification project program under the rules set forth in sections 4 through 8 of this notice. Pursuant to § 48B(d)(2), certificates of eligibility may be issued under the program only during the 10-year period beginning on October 1, 2005.

SECTION 4. ESTABLISHMENT OF QUALIFYING GASIFICATION PROJECT PROGRAM

.01 In General. The Service will consider a project under the qualifying gasification 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, for each qualifying gasification project, a taxpayer must submit: (1) an application for certification by the DOE (“application for DOE certification”), and (2) an application for certification under § 48B by the Service (“application for § 48B 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 gasification project credits allocated to a qualifying gasification project at the time the Service accepts the application for § 48B certification for that project in accordance with section 4.02(9) of this notice. The qualified investment in the project will be certified as eligible for the credit to the extent such investment does not exceed the amount of the credit allocated to the project multiplied by five. See section 5 of this notice for the requirements applicable to the application for DOE certification and the application for § 48B certification.

(2) The certification for a project cannot apply to more than $650 million of the qualified investment in the project. Thus, the maximum amount of qualifying gasification project credits that will be allocated to a project is $130 million.

(3) The aggregate credit of $350 million will be allocated as follows in the initial round of allocations conducted in 2006:

(a) The aggregate credit will be allocated first to the projects that have carbon capture capability (as defined in § 48B(c)(5)), use renewable fuel, or have project teams with experience that demonstrates successful and reliable operations of the gasification technology on the domestic fuels identified in § 48B(c)(2).

(b) If the requested allocation of credits for these priority projects exceeds the aggregate credit of $350 million, the credit will be allocated to the priority projects providing the highest ratio of the total amount of synthesis gas to be supplied by the project (“nameplate capacity”) to requested allocation of credits.

(c) If the requested allocation of credits for the priority projects does not exceed the aggregate credit of $350 million, the remaining amount of the credit will be allocated to the nonpriority projects providing the highest ratio of nameplate capacity to requested allocation of credits.

(4) If the aggregate credit of $350 million 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 of $350 million is fully allocated. Generally, the results of each year will be announced.

(5) If the same project would otherwise be allocated credits under both the qualifying gasification project program under this notice and the qualifying advanced coal project program under Notice 2006-24, 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.

(6) For each allocation round, there will be an annual application period during which a taxpayer may file its application for § 48B certification. The Service will consider a project in an allocation round only if the application for § 48B 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 that application period.

(7) 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 § 48B 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 § 48B 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 § 48B 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).

(8) 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.

(9) By November 30 of the calendar year in which an application for § 48B certification is deemed to be submitted (as determined under section 4.02(7) of this notice), the Service will accept or reject the taxpayer’s application for § 48B certification and will notify the taxpayer, by letter, of its decision.

(10) A taxpayer that receives an acceptance letter under section 4.02(9) of this notice has 7 years from the date of the acceptance letter to place the project in service and if the project is not placed in service by the end of that period then the acceptance letter is void.

(11) If the taxpayer’s application for § 48B certification is accepted, the acceptance letter will state the amount of the credit allocated to the project and the amount of qualified investment that is certified as eligible for the credit. 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 gasification 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 gasification 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 § 48B certification and a separate application for DOE certification must be submitted for each qualifying gasification 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 6.01 and 6.02 of this notice, the DOE may decline to accept the application. If an application for § 48B certification does not include all of the information listed in section 5.03 of this notice and meet the requirements in sections 6.01 and 6.02 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 gasification project;

(4) A statement specifying the projected placed-in-service date of the qualifying gasification project;

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

(6) The amount of the qualifying gasification project credit requested for the project. The amount requested must not exceed $130 million (the maximum amount permitted under § 48B(a) and (c)(1)(C));

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

(8) The amount of synthesis gas to be supplied by the qualifying gasification project (nameplate capacity). The synthesis gas must be composed primarily of carbon monoxide and hydrogen for direct use or subsequent chemical or physical conversion; and

(9) Documentation or other evidence establishing that the taxpayer is financially viable without the receipt of additional federal funding associated with the qualifying gasification project.

.03 Information Required in the Application for § 48B Certification. An application for § 48B 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 § 48B Application. Applications for § 48B certification should be marked: SECTION 48B 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. OTHER REQUIREMENTS

.01 Signature. Each submission under section 5 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 section 5 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 or Allocation. An acceptance or allocation by the Service under this notice is not a determination that a project qualifies for the qualifying gasification project credit under § 48B. 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 § 48B certification or the amount of credit allocated to the project) to an Associate Chief Counsel or any other official of the Service.

SECTION 7. REVIEW AND REDISTRIBUTION

.01 In General. Section 48B(d)(1) provides for the review and redistribution of credits allocated under the qualifying gasification project program under rules similar to the rules of § 48A(d)(4).

.02 Review and Redistribution of Credits.

(1) In general. If, after the allocation round in 2008, the aggregate credit of $350 million is not fully subscribed (i.e., the aggregate credit is not fully allocated), an additional program for applications for certification to allocate the remaining credits will be conducted. Future guidance will prescribe the procedures applicable to applications for certification with respect to the remaining credits.

(2) Reduction or forfeiture of allocated credits. Under the closing agreement set forth in Appendix A to this notice, the qualifying gasification 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 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 8. QUALIFIED PROGRESS EXPENDITURES

.01 Section 48B(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 § 48B. 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 gasification 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 gasification project credit on the qualified progress expenditures paid or incurred by a taxpayer during the taxable year for construction of a qualifying gasification project, the taxpayer must make an election under the rules set forth in § 1.46-5(o) of the Income Tax Regulations. The taxpayer may not make the qualified progress expenditures election for a qualifying gasification project until the taxpayer has received an acceptance letter for the project under section 4.02(9) of this notice.

.04 If a taxpayer makes the qualified progress expenditures election pursuant to section 8.03 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 gasification project are:

(1) Failure to place the project in service within 7 years from the date of the acceptance letter under section 4.02(9) of this notice; or

(2) In the case of a project that was entitled to priority for carbon capture capability, failure to provide that priority benefit on the date the project is placed in service.

SECTION 9. EFFECTIVE DATE

This notice is effective February 21, 2006.

SECTION 10. 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 1545-2002.

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, and Appendix B of this notice. This information is required to obtain an allocation of qualifying gasification project credits. This information will be used by the Service to verify that the taxpayer is eligible for the qualifying gasification 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 1,700 hours.

The estimated annual burden per respondent varies from 50 to 125 hours, depending on individual circumstances, with an estimated average of 85 hours. The estimated number of respondents is 20.

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 11. DRAFTING INFORMATION

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


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